<blockquote>
  <p>why are such methods not employed by more frequently by
  economists/econometricians?</p>
</blockquote>

<p>Because the so-called <em>technical analysis</em> ("TA") is overly simplistic and devoid of mathematical (or at least rational) basis. </p>

<p>The application of algebra, probability, time series, and other tools &amp; disciplines does not guarantee accuracy of forecast, but at least that application provides a more robust framework with which to model financial data than what is achievable through TA. Just to mention one example, TA does not address <em>arbitrage opportunities</em>, which is a useful and consistent approach to pricing financial instruments.</p>

<blockquote>
  <p>I noticed though the methods were simple and required little knowledge
  of statistics, they worked very well. They call these methods as a
  part of trend analysis.</p>
</blockquote>

<p>There is a false sense of accuracy surrounding TA. Materials that teach or promote TA obviously will present instances where --in hindsight-- the method appears to work. But nothing in TA predicts, models, or at least explains the price trajectory of a financial instrument (let alone its timing).</p>

<p>I think that if/when TA supposedly "works", it is only because of a kind of self-reinforcing feedback: TA "indoctrination" inadvertently prompts TA adepts to reinforce that, say, a price-band (or however it is called) is about to be broken because the price of the stock has touched its limit twice. Thus, TA-based traders react by performing certain transactions expecting to profit from the supposedly imminent direction of the stock.</p>

CC BY-SA 4.0
2018-07-20T20:49:42.360Z
This was my initial reaction to these methods and I dont 100% disagree with you. however what impressed me was the unique explanation of bubbles employed by TAs and Dow Theory. Though it could be as you say just a game of connect the dots with no predictive value.
EconJohn
CC BY-SA 4.0
2018-07-21T02:43:14.713Z
There are  connections between technical analysis and more supposedly "complex" econometric models.  Andrew Lo has a well known paper on this but the title escapes me at the moment. Note that, moving averages,  extremely popular in technical anaylsis, can be approximated by exponential smoothing (ES ) models and ES models have subtle connections with more complex econometric models. I'll try to track down a few papers and send the links. My point is: TA can sometimes be similar to using econometric methods. Also, the "success" of TA is not as clear as some make it out to be.
mark leeds
CC BY-SA 4.0
2018-07-21T02:48:55.560Z
Here is a link to Lo's paper https://www.cis.upenn.edu/~mkearns/teaching/cis700/lo.pdf. Here is another paper that makes interesting connections between  MA's and return models: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604942
mark leeds
CC BY-SA 4.0
2018-07-20T20:38:20.040Z
2018-07-20T20:44:03.187Z
2018-07-20T20:44:03.187Z
Iñaki Viggers
<p>I've been reading the book <a href="https://www.amazon.ca/Technical-Analysis-Explained-Fifth-Successful/dp/0071825177" rel="nofollow noreferrer">Technical Analysis Explained by Martin J. Pring</a> as a result of a conversation with one of my friends who said he did technical analysis but didn't apply the types of models employed by econometrician when forecasting (i.e ARIMA, VAR ect).</p>

<p>as I progressed through the book, I noticed though the methods were simple and required little knowledge of statistics but they worked very well. They call these methods as a part of trend analysis.</p>

<p><strong>My Question:</strong> why are such methods not employed by more frequently by economists/econometricians?</p>

<hr>

<p>Note: an example of such methods can be seen in the presentation by Martin Pring: <a href="https://www.youtube.com/watch?v=xgoV0UCUkW4" rel="nofollow noreferrer">Technical Analysis for Short Term Traders</a></p>

CC BY-SA 4.0
2018-07-20T22:06:06.477Z
The phrase "they worked very well" seems misleading. Could you elaborate what you mean by this?
Giskard
<econometrics><soft-question>
Technical Analysts and Econometricians: A Question on Methods
EconJohn
# Technical Analysts and Econometricians: A Question on Methods

(Asked by: username_0 on 2018-07-20)

I've been reading the book [Technical Analysis Explained by Martin J. Pring](https://www.amazon.ca/Technical-Analysis-Explained-Fifth-Successful/dp/0071825177) as a result of a conversation with one of my friends who said he did technical analysis but didn't apply the types of models employed by econometrician when forecasting (i.e ARIMA, VAR ect).

as I progressed through the book, I noticed though the methods were simple and required little knowledge of statistics but they worked very well. They call these methods as a part of trend analysis.

**My Question:** why are such methods not employed by more frequently by economists/econometricians?

---

Note: an example of such methods can be seen in the presentation by Martin Pring: [Technical Analysis for Short Term Traders](https://www.youtube.com/watch?v=xgoV0UCUkW4)

**Tags:** econometrics, soft-question

> **Comments:**
> **username_1**: The phrase "they worked very well" seems misleading. Could you elaborate what you mean by this?  

---

## 1 answers

### Answer by username_2 on 2018-07-20. Score: 2

> why are such methods not employed by more frequently by
> economists/econometricians?

Because the so-called *technical analysis* ("TA") is overly simplistic and devoid of mathematical (or at least rational) basis.

The application of algebra, probability, time series, and other tools & disciplines does not guarantee accuracy of forecast, but at least that application provides a more robust framework with which to model financial data than what is achievable through TA. Just to mention one example, TA does not address *arbitrage opportunities*, which is a useful and consistent approach to pricing financial instruments.

> I noticed though the methods were simple and required little knowledge
> of statistics, they worked very well. They call these methods as a
> part of trend analysis.

There is a false sense of accuracy surrounding TA. Materials that teach or promote TA obviously will present instances where --in hindsight-- the method appears to work. But nothing in TA predicts, models, or at least explains the price trajectory of a financial instrument (let alone its timing).

I think that if/when TA supposedly "works", it is only because of a kind of self-reinforcing feedback: TA "indoctrination" inadvertently prompts TA adepts to reinforce that, say, a price-band (or however it is called) is about to be broken because the price of the stock has touched its limit twice. Thus, TA-based traders react by performing certain transactions expecting to profit from the supposedly imminent direction of the stock.

> **Comments:**
> **username_0**: This was my initial reaction to these methods and I dont 100% disagree with you. however what impressed me was the unique explanation of bubbles employed by TAs and Dow Theory. Though it could be as you say just a game of connect the dots with no predictive value.  
> **username_3**: There are  connections between technical analysis and more supposedly "complex" econometric models.  Andrew Lo has a well known paper on this but the title escapes me at the moment. Note that, moving averages,  extremely popular in technical anaylsis, can be approximated by exponential smoothing (ES ) models and ES models have subtle connections with more complex econometric models. I'll try to track down a few papers and send the links. My point is: TA can sometimes be similar to using econometric methods. Also, the "success" of TA is not as clear as some make it out to be.  
> **username_3**: Here is a link to Lo's paper https://www.cis.upenn.edu/~mkearns/teaching/cis700/lo.pdf. Here is another paper that makes interesting connections between  MA's and return models: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604942  

---

