How to prove that technical analysis is effective?

First of all, let's talk about it, what is technical analysis?

The definition given by John Murphy, the author of "Technical Analysis of Futures Market": Technical analysis is the study of market behavior with the purpose of predicting the future trend of market price changes and using charts as the main means .

"Using charts as the main means" means that in the highly leveraged foreign exchange gold market, most traders use technical analysis. Think about it, in this highly leveraged market, there are several traders who do not use charts as the main means ?

It is recognized that technical analysis first originated from Dow Theory, which has a history of more than 100 years. Afterwards, Gann Theory, wave concept, moving average, various indicators, etc., have been as numerous as the vast stars; K-line theory, in fact, originated earlier, nearly three centuries.

If technical analysis is invalid, how can it persist and last for a long time?

So how to prove that technical analysis is effective?

It may be easier to explain with an example, just like adolescent boys and girls, you tell them how wonderful things are between men and women, they can't understand anyway, so how can you prove it to them?

The only way is for them to experience it themselves when they become adults. Do they still need to prove it after the experience?

Similar to this, the best way to prove that technical analysis is effective is to see is believing, to test it yourself, the market forms such as: W top-bottom, triple top-bottom, head-shoulders top-bottom, triangle, box shape, etc., and the price evolves in a trend way , K-line shape, horizontal support pressure, etc., these are all facts before our eyes, do we still need to prove it?

​

Let me tell you about my own personal experience.

Thinking back to the first two years when I first entered the market, it should be said that trading was based on fundamental analysis at that time, and what I did was paper gold, not margin trading.

At that time, I searched for fundamental news and news every day, and then analyzed and traded.

Once I saw reports from major banks such as JPMorgan Chase, Citigroup, etc., predicting that the future price will go up to 4,000, 5,000, and even 10,000; I thought that with their strength, there should be no mistakes, and the analysis was methodical. , and then bought near the first red arrow 1565, waiting to make a fortune, feeling very happy. ​

However, after a week, the price began to fall, and it was a kind of free fall. I stared at the market, and my mood was like a stone falling from a high altitude. It felt like falling into an abyss. You're trying so hard to grab something, but there's nothing to grab, just keep falling...

In the end, I simply turned off the computer and stopped watching...

​

Fortunately, after nearly a week, the price rebounded to around 1485, and then gradually walked out of a circular top. At that time, I didn't understand any technology, and I didn't even know the most basic K-line shape, so I simply and vaguely felt Seeing the physical nature of the price, it was a bit parabolic. After that, I closed my position and backhanded short. I didn’t know what W bottom was. I finally entered the market at the position of the yellow arrow, which was considered to have recovered a large part of my capital.

In fact, I realized the effectiveness of technology subconsciously that time, but I didn't really realize it at the beginning, and then I slowly moved towards the path of pure technical analysis...

Because trading on pure fundamentals is really unreliable for our small retail investors.

As you mentioned, another big guy said that it is reliable to follow the entry time and price of the institution to trade. The question is, as a small retail investor, how can you know the entry time and price of the institution? Only through technology, because no matter how the institutions cover up and hide, their funds will inevitably leave traces on the K-line if they want to enter the market, so technical analysis is the method that is really suitable for our small traders, because the market is important for every trader All are fair.

In fact, there is no need to worry about how to prove the effectiveness of the technology, because it is too obvious. Instead, you should think about how to build a stable trading system with positive expectations. If you really have no idea, you can take a look at my The articles in the "discussion" are almost systematic content, combining "potential, position, and state" to build a reliable system, I hope it will be helpful to you.