Technical Analysis is Chiropractic Finance

Chiropractic by Michael Dorausch

03 Sep Technical Analysis is Chiropractic Finance

I have stiff neck and shoulders. I hated it when the pain acts up. It can cause me headaches at its peak.

I have contemplated seeing a chiropractor but I never did. My inaction was contributed by the mixed reviews on the efficacy of chiropractic. It has been labelled as a pseudoscience as the effectiveness cannot be proven or disproved. Ask any doctor, especially the orthopaedics, and they will denounce chiropractic as medicine.

However, that has not discouraged many patients from visiting chiropractors. For those who had no relief from physiotherapy, pain killers or any mainstream solutions, they would naturally be more willing to try out chiropractic. What’s there to lose? Maybe I can relieve my pain? For some, it might have really worked for them and they became long term clients of chiropractors.

In short, chiropractic is widely practised but never given the recognition.

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Drawing parallels between medicine and finance, I see similarities in chiropractic and technical analysis.

Technical analysis is not recognised in mainstream finance. It is easy to notice most of the analysts’ reports rely on economic or fundamental analyses. Technical analysis is almost like a taboo and a crass approach to investment analysis. An analyst who uses technical analysis to justify his call for a stock to the portfolio manager would almost lose his job immediately. The finance academics were even more critical, labelling technical analysis as pseudoscience.

Ask Aggregate Asset Management on technical analysis and this will be their reply (see No 24 of their FAQ):

“No, we don’t dabble in witchcraft.”

Technical analysis is more accepted by retail investors and I think it is due to its graphical presentation and simplicity in analysis. One does not need to learn how to read financial or economic reports to make an investment decision.

Please don’t get me wrong. I am not against technical analysis. Personally I know people who had made millions of dollars using technical analysis, although they are few and far between and I can easily count with my fingers.

The problem is that you cannot prove or disprove technical analysis. And this means anyone can easily abuse the use of it. My experience tells me there are more losing stories than winning ones when it comes to the practice of technical analysis.

What’s your experience?


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  • anonymous
    Posted at 16:20h, 03 September Reply

    My short stint (thank goodness!) with TA reinforces my belief that it’s nothing more than “studying” tea leaves in a teacup ; meaningless at best and foolhardy at worst. Trading with TA requires a very strong stomach for losses and enough capital, which is why many fail at it.
    Thankfully, I read up on value investing and fundamental analysis, and have been the better for it. All I can say is everything that is written on fundamental analysis and value investing is true, and I have benefited from it.

  • ryan
    Posted at 10:44h, 09 September Reply

    There lies the answer why you did not see through it ‘My short stint’ . We expect to see result the moment we embark on anything we fancy. I wish that’s true in life.

  • Mike Smith
    Posted at 03:05h, 05 February Reply

    In finance, there is no way to prove anything. You can’t prove that the stock of a company with a sound balance sheet and good profit growth won’t plunge, you can’t prove that a commodity that is over-supplied won’t rise in prices, you can’t prove that bonds will plunge if interest rates go up.

    Any form of securities analysis is a Catch-22 exercise. If a method of analysis gets really accurate, a lot of people will start following it, and once a lot of people start following it, one of 2 things will happen.

    1) The market will die out. If everybody thinks that a stock is a long term buy, then nobody will be willing to sell, and the market for that stock will become illiquid.

    2) The biases and the emotions of the people who are participating in the market will start affecting the prices, which will eventually dilute the accuracy of the method of analysis. If one analyst thinks that a company has a very good financial track record, he will look to buy the stock. But another analyst could think that the sector within which the company operates is gonna get hit badly, and he will look to sell. Both are using fundamental analysis, who is right and who is wrong ??

    My point is, every form of securities analysis is “chiropractic” in one way or another. Technical analysis is nothing more than a method of trend assessment. Singling it out like this is unfair.

    • Alvin Chow
      Posted at 08:36h, 05 February Reply

      Hi Mike, thanks for your comment.

      I agree that the market works on a variable interval and ratio reward system. This means that it is very hard for people to link the causes to the effects. Regardless what form of analyses.

      The reason I wrote this was because I found that chiropractic was ‘singled out’ in the medical community as pseudoscience. I saw this parallel for technical analysis among finance professionals. The aim of the article was to illustrate this treatment, not to bash technical analysis.

      I am not against technical analysis. There are people who use it with great success, and who cares if it is pseudoscience?

      • Mike Smith
        Posted at 15:32h, 05 February Reply

        Thanks for clarifying.

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