Fundamental techniques or technical fundamentals of analysis?(+)

10 thg 4, 2018

Maybe you heard or read somewhere Warren Buffett's opinion about TA:
"I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer."

Let's review this, taking into account described before paradigm of scientific analysis. Remember in this approach TA is not defined. Buffett got chart of some stock and applied to it some method of analysis which was associated with TA by him. After this he "turned the chart upside down" or made transformation (more exactly - inversion) of input price data and ended with the same result, when it was reasonable to expect that result must be transformed (inverted) too. We can't say what TA is in Buffett's mind but probably he associated TA only with price charts and of course didn't use same method of analysis for non-price data. We should interpret his statement "technical analysis didn't work" as overgeneralization - the fact is particular price chart analysis method used by him didn't work. But validity checking of the method was purely scientific. Actually if we "turned the chart upside down", trading direction derived from analysis should be turned too but resulting trading decision would be maintained - it should be independent from representation of price data. If analysis of share/usd chart give us decision to BUY shares for usd then same analysis for usd/share should give us decision SELL usd for shares. In science there is the term called invariant - quantity that doesn't change through transformations of some class. Also there is analogy from physics - physical laws must be independent from one inertial frame of reference to other (laws persist if we somehow translate, turn by constant angle, send constant velocity to frame of reference). For trading this principle sounds like "Trading decision derived from analysis should be independent from price units or representation of value ratios in supplied data".