Does Any Technical Analysis Work? (Part 5)

Today I continue with a sample of internet opinions on whether algorithmic trading with TA can actually work.

     > If someone created a bot that is profitable with good metrics,
     > they would never sell it. Ask yourself this: if you have an ATM
     > that magically refills itself every night, would you sell it for
     > petty cash? The ones selling bots are… not producing a
     > profit… [9]

I’ve heard this many times and find it to be a compelling, but not ironclad argument. If I had a large chunk of money then I could certainly turn it into millions. If I had little money, then I might still benefit from selling to others for point-of-sale profit while I execute it myself and make a high return percentage on a small amount. Alternatively, for the sake of diversification I might never want to trade it in large size. Since I could not count on making too much money from this one system, I might as well sell it to others to get some guaranteed money while I continue work on developing others.

     > “There are a lot of people arguing they can make profit just
     > using TA, following some pattern or indicator rule.” A lot of
     > idiots, zeros, make a few dollars a month selling PDFs explaining
     > how to “make millions with simple patterns or indicator rules!!”
     > In contrast… few quants have indeed made a lot of money
     > using incredibly difficult and sophisticated software systems,
     > which have utterly no connection whatsoever to some trivial
     > pattern rules. The bots you have made and you refer to are a
     > joke—the equivalent of looking up spelling in a dictionary
     > file—whereas quants are like Siri. [10]

I’ve written much in this blog about optionScam.com. Like me, this person has also observed the financial industry to have some nefarious (see third paragraph here) contributors.

     > “I just wanted to know if those public and typical strategies
     > work or if they are just scam to fool beginners like me.” I think
     > they are a scam to fool everyone! You know how large brokerage
     > companies will have a large “TA” department, headed by major
     > experts making millions per year and dozens of PhD staff. Many
     > traders would tell you it’s an utter scam—they just add
     > those departments purely so they can say to clients “well,
     > we have this impressive TA department…” you know? [11]

I’m not a conspiracy theorist (see third paragraph here), but given that a decent amount of misconduct exists in certain segments of the financial industry, I think we need to acknowledge the possibility described. I think the only way to know with more certainty would be to work in the industry proper—maybe for multiple firms to gain perspective on tactics used by a large sample size of institutions.

I will wrap up these comments next time.