RE: Technical analysis, Indicators and Patterns explainend! Lesson 1 #Bartcardi

Nice article! I'm a complete noob when it comes to financial analysis, so it's helpful to finally get familiar with some of the jargon.

That being said, there's this issue that keeps bugging me whenever I read about analyses in general: predictive power. For instance, how powerful are the patterns and indicators you mention when it comes to actually predicting the future? Can you robustly link them (through thorough statistical analyses) to certain outcomes?

Don't get me wrong; I understand phenomenology and ad hoc reasoning have their uses. But there's an inherent danger in focusing too much on rather arbitrarily-defined parameters (categories, patterns, indicators, or what have you). For instance, the so-called Myers–Briggs Type Indicator (MBTI) purports to be a useful tool for understanding human psychology, although in practice it's unreliable, a poor predictor of things like job performance, and the existence of the "personality dichotomies" it proposes is contradicted by empirical evidence.

To make my point clearer, let's say I observe a "head & shoulders" pattern. What should I expect to happen after I spot it, and how does that compare to a "triangles" indicator (or any other, for that matter)? Is there a statistically significant difference between the two? These are all questions that can (and should, I believe) be answered. If it turns out that these indicators are poorly correlated with certain unique future outcomes, or if all indicators have roughly the same predictive power, then investment is more like taking a random shot in the dark than an actual game with better or worse strategies. That would, in turn, imply that success is mostly determined by luck rather than merit.

In short, while I like and appreciate shedding light on the phenomenology of technical analysis, I believe it would greatly benefit the average reader (like myself) if you could say something about its forecasting power. After all, describing what you see doesn't necessarily mean you understand it.

Thanks again for the great read.