The steel-man position for technical analysis is that humans are herd animals, who tend to do things in similar, predictable ways. Such as, people who pick stocks like to sell and take profits after the stock reaches some nice, round number. When enough people do this, it can result in repeatable, predictable patterns in prices.
The massive caveat there is of course that while that might be true in the absence of outside stimuli, any news always trumps that. It doesn't matter how nice your patterns are, if it comes out that the company somehow did worse than expected, it's price is going to fall, and if it did better than expected, it's going to rise. Trading on technicals might be something that works if you are really fucking careful, but it seems to me like you are picking quarters in front of a steamroller, in a way. The actual reliable profits from technical analysis are always going to be small, and the risks of investing with no understanding of the fundamentals seems fraught.
Is this true? For example, is using AI models that take into price history, current and historical events, insider and/or institutional trading, analyst opinions -- would that not be considered technical analysis? I know this is just a matter of semantics, but curious as to what is considered TA nowadays.
Technical analysis is specifically the stupid line drawings you see on stock charts that try to predict trend lines from the motion of the previous lines
Some things, like weather and major political issues are easily obtained bits of information and are high-impact events. Data like satellite imaging of fields are available at a price and will tell an awful lot about what best-case production figures will be like. Lastly, insider information is around too - asking companies what they planted, sales data on seeds/fertilizer, etc. If a disease is hitting one company, it's probably hitting a lot of them, especially true with live stock.
People do pay for this information, and they use it to trade futures. Which is how it eventually gets "priced in."
Successful forecasting is a huge factor in a successful agriculture business. Which is part of why a lot of niche industries tend towards vertical integration - it's much easier to forecast demand when you produce a lot of derivative products. Buy your own stuff; if you planted a surplus then create new products / markets, if there's a shortage, cut production on lower profit items.
Experts predict crop failures, big money acts on those predictions and moves securities price and volume, which technical analysts examine.
Therefore, the experts prediction is input for technical analysis.
If I know for a fact that a company is about to collapse and I establish a short position, will anybody notice? It depends on a lot of factors, but I could make an assload of money on puts without nudging the market.
Technical analysis is all about answering the question: are you able to filter who know something vs those that don't merely by looking at a buy signal? The answer: no, not really. Insiders acted well in advance of the SVB issues being made public, and there are lot of other examples of people making guaranteed bets that weren't obvious in the technicals. The noise is just too much.
By the time the signal is clear, the market has "priced" it in, and now you're just trying to predict the random actions of the know-nothing crowd.
Technicals are always after-the-fact. Since enough people with deep knowledge have to have already moved on that information in order for the market to have reacted to it.
It's much like trying to predict a fire by watching a crowd running away and hit the fire alarm. You didn't predict the fire and you can't have predicted the fire. Maybe you could have noticed one person booking it for the exit and follow along, but you still didn't know what was happening and were going on blind faith.
Assuming you are the only person who knows for sure that this company will collapse, technical analysis is the wrong tool to use and all other strategies, experts, big money players will also fail.
Assuming you aren't the only person who knows for sure that this company will collapse the price will reflect this knowledge.
>It's much like trying to predict a fire by watching a crowd running away and hit the fire alarm. You didn't predict the fire and you can't have predicted the fire. Maybe you could have noticed one person booking it for the exit and follow along, but you still didn't know what was happening and were going on blind faith.
It's nothing like that at all, and reasoning with analogy is pointless because the discussion becomes about the analogy not the issue at hand. But I will try. If people running away is people selling stock, it doesn't matter if there is a fire or not. Selling stock impacts price regardless of if the event is real or not. And as you know, having been in a building where the fire alarm was activated, people don't rush to the exists. Some small number leave right away. The vast majority won't enter the building. The remaining people look to others and as more leave the momentum builds until the mass moves out.
And once the fire department arrives and gives the ok they will go back in. But since we are talking about stocks, not all buyers won't be waiting for that. They'll have put their money elsewhere, money may go back into the stock slowly. Obviously this won't work on the top 3 most popular stocks in a raging bull market that everyone is paying attention to. In that case, people will be waiting to jump back in.
Also, the situation is very dynamic with an unknown and very large number of variables, even with something as seemingly simple as a crop failure. Such as such as a countries deciding to ban exports to secure food security, lack of access to fertilizer due to sanctions against major fertilizer producers in wheat producing countries, the politics of national and local water rights.
All these factors have parties with inside information acting on them (see members of congress trading stocks) which no player with big pockets will have access to but is all reflected in the price.