Evidence for Technical Analysis [duplicate]
To answer your original question: There is proof out there. Here is a paper from the Federal Reserve Bank of St. Louis that might be worth a read.  It has a lot of references to other publications that might help answer your question(s) about TA.  You can probably read the whole article then research some of the other ones listed there to come up with a conclusion.  Below are some excerpts:  Abstract: This article introduces the subject of technical analysis in the foreign exchange market, with emphasis on its importance for questions of market efficiency.  “Technicians” view their craft, the study of price patterns, as exploiting traders’ psychological regularities.  The literature on technical analysis has established that simple technical trading rules on dollar exchange rates provided 15 years of positive, risk-adjusted returns during the 1970s and 80s before those returns were extinguished.  More recently, more complex and less studied rules have produced    more modest returns for a similar length of time.  Conventional explanations that rely on risk adjustment and/or central bank intervention do not plausibly justify the observed excess returns from following simple technical trading rules.  Psychological biases, however, could contribute to the profitability of these rules. We view the observed pattern of excess returns to technical trading rules as being consistent with an adaptive markets view of the world.    and  The widespread use of technical analysis in foreign exchange (and   other) markets is puzzling because it implies  that either traders are   irrationally making decisions on useless information or that past   prices contain useful  information for trading.  The latter   possibility would contradict the “efficient markets hypothesis,”   which holds that  no trading strategy should be able to generate   unusual profits on publicly available information—such as past    prices—except by bearing unusual risk. And the observed  level of   risk-adjusted profitability measures market  (in)efficiency. Therefore   much research effort has been directed toward determining whether   technical analysis is  indeed profitable or not. One of the earliest   studies, by Fama and Blume (1966), found no evidence that a particular   class of TTRs could earn abnormal profits in the stock market.   However, more recent research by Brock,  Lakonishok and LeBaron (1992)   and Sullivan, Timmermann an d White (1999) has provided contrary   evidence. And  many studies of the foreign exchange market have found   evidence that TTRs can generate persistent profits (Poole  6  (1967),   Dooley and Shafer (1984), Sweeney (1986), Levich and Thomas (1993),   Neely, Weller and Dittmar (1997),  Gençay (1999), Lee, Gleason and   Mathur (2001) and Martin (2001)).
"Your questions In the world of technical analysis, is candlestick charting an effective trading tool in timing the markets? It depends on how you define effective. But as a standalone and systematic strategy, it tends not to be profitable. See for example Market Timing with Candlestick Technical Analysis: Using robust statistical techniques, we find that candlestick trading rules are not profitable when applied to DJIA component stocks over 1/1/1992 – 31/12/2002 period. Neither bullish or bearish candlestick single lines or patterns provide market timing signals that are any better than what would be expected by chance. Basing ones trading decisions solely on these techniques does not seem sensible but we cannot rule out the possibility that they compliment some other market timing techniques. There are many other papers that come to the same conclusion. If used correctly, how accurate can they be in picking turning points in the market? Technical analysts generally fall into two camps: (i) those that argue that TA can't be fully automated and that interpretation is part of the game; (ii) those that use TA as part of a systematic investment model (automatically executed by a machine) but generally use a combination of indicators to build a working model. Both groups would argue (for different reasons) that the conclusions of the paper I quoted above should be disregarded and that TA can be applied profitably with the proper framework. Psychological biases It is very easy to get impressed by technical analysis because we all suffer from ""confirmation bias"" whereby we tend to acknowledge things that confirm our beliefs more than those that contradict them. When looking at a chart, it is very easy to see all the occurences when a certain pattern worked and ""miss"" the occurences when it did not work (and not missing those is much harder than it sounds). Conclusions" I love technical analysis, and use candlesticks as part of my technical analysis system for trading mutual funds in my 401K. However, I would never use a candlestick chart on its own.  I use combination of candlesticks, 2 different EMAs, MACD, bollinger bands, RSI and hand drawn trend lines that I constantly tweak.  That's about as much data input as I can handle, but it is possible to graph it all at once and see it at a glance if you have the right trading platform. My approach is very personal, not very aggressive, and took me years to develop. But it's fairly effective - 90% + of my trades are winners. The big advantage of technical analysis is that it forces you to create repeatable rules around which you base your trading.  A lot of the time I have little attention at all on what fund I am trading or why it is doing well in that particular market condition. It's basically irrelevant as the technical system tells when to buy and sell, and stops you trying to second guess whether housing, chemicals, gold or asian tigers are is doing well right now. If you don't keep to your own rules, you have only yourself to blame. This keeps you from blaming the market, which is completely out of your control. I explain many of my trades with anotated graphs at http://neurotrade.blogspot.com/ They do pitchdecks every week with the industry coverage groups presenting biweekly. Fundamental analysis included industry overview/company overview/investment rationale/valuation (usually DCF or public comps)/risk. PM then uses pitchdeck and technical analysis to set orders but buys the stock for the long run and makes and monitors it daily. 21% in a year and high growth picks by the OC for industries in tech usually are high growth so cap gains there are evn higher  U probably went to some retard school. I said back office bc I highly doubt your dumb ass works in IB based on how socially incompetent and arrogant u sound. Fundamental Analysis can be used to help you determine what to buy, but they won't give you an entry signal for when to buy. Technical Analysis can be used to help you determine when to buy, and can give you entry signals for when to buy. There are many Technical Indicator which can be used as an entry signal, from as simple as the price crossing above a moving average line and then selling when the price crosses back below the moving average line, to as complicated as using a combination of indicators to all line up for an entry signal to be valid. You need to find the entry signals that would suit your investing or trading and incorporate them as part of your trading plan. If you want to learn more about entry signals you are better off learning more about Technical Analysis. It is called the Monday Effect or the Weekend Effect. There are a number of similar theories including the October Effect and January Effect. It's all pretty much bunk. If there were any truth to traders would be all over it and the resulting market forces would wipe it out. Personally, I think all technical analysis has very little value other than to fuel conversations at dinner parties about investments. You might also consider reading about Market efficiency to see further discussion about why technical approaches like this might, but probably don't work. Support and resistance only works as a self-fulfilling prophecy. If everyone trading that stock agrees there's a resistance at so-and-so level, and it is on such-and-such scale, then they will trade accordingly and there will really be a support or resistance. So while you can identify them at any time scale (although as a rule the time scale on which you observed them should be similar to the time scale on which you intend to use them), it's no matter unless that's what all the other traders are thinking as well. Especially if there are multiple possible S/P levels for different time scales, there will be no consensus, and the whole system will break down as one cohort ruins the other group's S/P by not playing along and vice versa. But often fundamentals are expected to dominate in the long run, so if you are thinking of trades longer than a year, support and resistance will likely become meaningless regardless. It's not like that many people can hold the same idea for that long anyhow. "Assuming that you accept the premise that technical analysis is legitimate and useful, it makes sense that it might not work for a small market, or at the very least that it wouldn't be the same for a small market as it is for a large market.  The reason for this is that a large stock market like the U.S. stock market is as close to a perfect market as you will find: Compare this to a small market in a small country. Market information is harder to get, because there are not as many media outlets covering the news. There aren't as many participants. And possibly it might be more expensive to participate in, and there might be more regulatory intervention than with the large market.  All of these things can affect the prices. The closer you get to a perfect market, the closer you get to a point where the prices of the stocks reflect the ""true value"" of the companies, without external forces affecting prices." "Back-testing itself is flawed. ""Past performance is no guarantee of future results"" is an important lesson to understand. Market strategies of one kind or another work until they don't.  Edited in -- AssetPlay.net provides a tool that's halfway to what you are looking for. It only goes back to 1972, however. Just to try it, I compared 100% S&P to a 60/40 blend of S&P with 5 yr t-bills (a misnamed asset, 5 yr treasuries are 'notes' not 'bills') I found the mix actually had a better return with lower volatility.  Now, can I count on that to work moving forward? Rates fell during most of this entire period so bonds/notes both looked pretty good. This is my point regarding the backtest concept.  GeniusTrader appears more sophisticated, but command line work on PCs is beyond me. It may be worth a look for you, JP. ETF Replay appears to be another backtest tool. It has its drawbacks, however, (ETFs only)"