Chesapeake Energy Corp (CHK)

[Crusen]

LOL...charting.

Can technical analysis successfully forecast the market?
The technical analysis community certainly has command of the financial news world — it is hard to read any online financial news source without seeing at least some articles of this genre. More importantly, many individual investors, pension funds, mutual funds and other organizations routinely use technical analysis methods in their market analysis and decision making.

But do these methods really work? Do they really deliver consistently above-market-index results? Market analyst Laszlo Birinyi, interviewed in the book The Heretics of Finance, wrote, rather bluntly, “The truth is technical analysis doesn’t work in the market.” He has shown, for instance, that anyone who relied on the advance-decline ratio would have remained out of the market entirely from 1957 until 2002.

The present bloggers, together with Amir Salehipour and the late Jonathan Borwein, recently completed the study Evaluation and ranking of market forecasters, which analyzed the records of 68 market forecasters, based on data earlier collected by CXO Advisory, and employing a novel weighting scheme that took into account how specific the forecasts were. Each of the 27 technical analysts (except for Tom DeMark) mentioned in the list three paragraphs above were part of this study. Indeed, these 27 were selected for analysis here, based on our checking each one of the 68 in the earlier study as to whether or not technical analysis and related methods appeared to be a significant part of their methodology.

So how well did the technical analysts do? Their average precision score was 44.1% — in other words, less than even chance. In fact, this average score was slightly less than the average of all 68 forecasters in our earlier study. In short, there is no evidence whatsoever in our data that technical analysis is effective in predicting markets. If anything, our results must be on the optimistic side, because of the well-known survivorship bias phenomenon — very likely numerous unsuccessful technical analysis practitioners have dropped out of the business, and thus are absent from our tables (hence our results are likely on the optimistic side).

http://mathinvestor.org/charts-and-technical-analysis-do-they-work