Actual market research directs resources to the most productive companies, helping them grow more quickly and generate positive aggregate value.
Essentially, it's a way to add intelligence and information to the companies that represent the market, to make them more profitable. Specifically, it allows newcomers to grow more quickly if they're more efficent than legacy companies, meaning it's more difficult for the legacy companies to create moats.
Without trading, we might still have IBM at the top of the tech industry, with a massively inefficent organization, low worker salaries and enough market power to keep the competition away, since without a market, startups would need to cover ALL investments using organic profits.
But that's mostly true for medium-long term trading. Short term trading is mostly about speed and finding information or clues faster than anyone else. That part probably generates less net value than it consumes.
Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway. EMH is probably written under stricter/ideal conditions though.
If one wants to take a systematic/technical analysis approach though, I would look at the entire universe of stocks, whereas use a fundamental approach in individual stocks.
But yeah. I'm just an amature. What do I know.
The post you are responding to already answered this question.
Here is the answer: "it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret"
So, to answer the question, the important stuff in the trading strategies that you mentioned, include information asymmetry. Those systemic traders have hidden information, and hidden strategies that they use, and they don't just given everyone open source access to their code.
That's a good point. Best traders know how to use technical analysis, they just don't use it to invest their own money.
There was a newsworthy situation in the UK a couple of years ago where a star manager crashed and burned. He locked his trading account, with everyone's money still in it, and continued charging fees.
Apparently this is quite legal.
If you have a large group of people who take risks while trading, and they form strategies indistinguishable from flipping a coin (like technical analysis), then at the end of the day you're going to have a lot of ex-traders who failed to make money and a few that look like rock stars - because taking large risks and being lucky is a "good" way to make money fast. It's the very definition of survivorship bias.
I don't win; I'm out the dollar.
I buy a stock for a dollar.
It goes down 50% tomorrow. Then up 25% the next day and so on it fluctuates like a train going through the mountains.
One point in time it is low and another point in time it is high. I prefer to leave the train when it is high on the mountain.
i e. Picking a stock is a gamble but unlike the lottery I get to play the same game with the same money everyday until I win or die.
Only part of it....
Buy low, sell high, use other people's money
On the sell side, sure--you know when they'll under or overpay. Anyone buying retail flow should be running these models.
Technical analysis just looks at the surface of the order book--the transaction layer. If you're integrating the book, you can see when the surface is misleading and profit from it. There are technical heuristics, e.g. dead cat bounces, round-number tendencies, et cetera which are based in reality, part flow of funds and part psychological. But technicians' sole reliance on stock charts necessitates blindness to those underlying conditions.
In summary, a stock's near-term price history can, on its own, provide information that predicts the next tick. It's just a known subset of a broader set of signals. That the delineation is known makes those relying on these strategies possible to arbitrage.
One interesting thing about the stock market is that it’s entirely possible to be successful in it, attributing that success to strategy X, yet to be completely wrong about that.
It’s actually not limited to the stock market – there’s tons of professionals out there that are completely unaware of why what they do works. This makes many people nervous, and they try to come up with a rationalization or mental model for it, and sometimes they get it completely wrong.
By itself that doesn't mean anything, surely you realize?
What percentage of technical analysis traders own the million dollar houses?
You definitely can make huge amounts of money on short term trades if you get lucky. So occasionally a TA trader will become very rich and have a mansion.
But, do more than 50% of them strike it that rich? If not, it's just random.
It's like saying that powerball winners have mansions, therefore the best investment strategy is to buy powerball tickets.