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Technical analysis

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I've been looking at gold/silver  technical analysis videos on you youtube does it work, or is or like horoscopes, tea leave or palm reading.

Surely the price of silver/gold is based on the following, and not past history and trying to make nice shapes from a graph.

Real reasons (That  can be classified into Demand, confidence and opportunity cost of metals v alternative)

Demand in general, industry, paper  is it India wedding season etc 

Interest rates - world currency, local

How well alternatives eg stock market are going

Uncertainty - elections, war, referendums 

Economy of the world - recession etc

Price fixing 

And many more real quantifyable reasons 

So my question is does it work, and how?



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technical analysis has some of it's strength from solid principles.

eg people remember prices/or look it up. everyone bought/sold

at that point last time including me. if the price gets to that point

I'm expecting larger volume to occur. this sets up fixed values for

support and resistance levels. it takes time for large buyers and

sellers to make their moves, especially if they want it at a target

price. these people drive the markets. for them to unwind their

positions takes equally as long. this gives the momentum for

trend moves. technical analysis is said to work ~55% of the time.

people who do not learn from history will make the same mistakes.

those who learn from history wait to profit from such mistakes.


there's also an opportunist element to it, some indicators are much

more reliable than others.



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Technical analysis works to a certain degree and in certain circumstances because a lot of professional traders use it for trading. They have a lot of clout when it comes to making markets move and reverse etc. The more people who use moving averages, Fibonacci, resistance/support levels, Bollinger bands etc the more chance thay will work due to it becoming a self-fulfilling prophecy.

Profile picture with thanks to Carl Vernon

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Defenders of technical analysis claim that it measures the herd mentality of the market, and that particular patterns of prices emerge from the way in which market participants behave. I suspect in practice this means little more than it has a self-fulfilling role, as sovereignsteve said. There is no historical evidence to support the claim that events like a 60-day moving average crossing a 200-day moving average has any predictive value. It is true that you can often see tramlines on a chart, i.e. a price bounded above and below by resistance and support levels, but this is probably also just an artifact of the fact that analysts and investors identify a target price for a commodity or stock and then buy when it is below that level and sell when it is above. Enough investors following the same target price will create the tramlines: it still has no predictive value.

If you look at sites where technical analysts post their assessments, they hedge their advice all the time - they are constantly saying the price may go up or it may go down, it's all just probabilities; and even when they do make a prediction, look back at their previous predictions and you'll probably find they are only 50% accurate. Often they just alternate between predicting a rise and a fall, so they can always say they were right. You are better off forming a judgement based on fundamental factors and sticking with it: just review periodically to ensure your reasons are still sound.

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I have been looking into technical analysis for a bit and started to learn that it will takes some time to understand. The more read and learn about it to more people view it as a gambling or guessing game. However I'm still delving into it.

At the moment I see techical analysis like 'predicting' the weather. We have the tools that 'can' predict the weather but we can't really tell what could happen next. Yet it could be helpfull tool to be prepared for hot/cold days or to see if there are any storm clouds heading our way. So I think that TA is a handy and 'quick' visual tool to see how our own or the global markets behaves in certain situations and it work well in combination with fundamental analyis.

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it's useful to know that others are using it.

know thy enemy know thyself

be flexible, certain indicators work better than others.

the golden cross (50ma crossing 200ma when they are

both rising) actually does work more than average.

notice how we had a golden cross on gold a while back

(notice also that you could have predicted the golden

cross coming(high probability) before it became true)

gold has stayed above the golden cross value and rose

to higher highs since. saying that it's a self-fulfilling

prophecy is only half right. higher prices are sometimes

created by shorters closing their positions. technical

analysis helps traders determine where these stops are

likely to be so that they can force the shorters to close

their positions. as I say it can be an intuitive tactical play.



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On 14/05/2016 at 17:27, 4Nines7Hills said:

So my question is does it work, and how?

It's the wrong question to ask.

TA is just a tool that gives you a method for forecasting future price based on past action. Markets tend to move in trend until the trend ends as collective opinion forms over days, months and years, people increasingly act on their feelings and the opinion of fair price changes over time.

I believe that Technicals and Fundamentals are actually in agreement most of the time. They are both just an expression of trying to determine where perceived value will move to in the future, one looking at past price action, one looking at factors affecting supply/demand. My personal belief is that you should "buy" the fundamental story and "trade" the technical setup, which is why I have steered clear of PMs for the last few years even while I liked the fundamentals.

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