Are Technical Indicators Useful?

Yes and No. Evidently, there are periods when technical analysis works and the periods when it does not. The reasons can be many – fundamental changes, revised expectations, unexpected news, etc. During the periods when a majority of market participants make their decisions based on past market performance, as a rule, there would be some technical indicators that relatively work well.

Are there best ones? During some periods, some indicators might be the best winners, others – the worst losers. But all things are subject to change. Besides, indicators and markets are often a two-way system, i.e., markets can be affected when a huge number of investors use the same indicator(s). For example, the indicator predicts flat 2 days and then an uptrend for 3 days. If everybody follows, the forecast fails because price would be driven up first 2 days by buying volume and then 3 days flat or down-trending due to taking profit.

Other technical methods. In many cases, due to a semi-stochastic nature of the market, probabilistic statistical methods are able to predict well. Some of the systems that employed such methods is Neural Network (NN). NN often suffers from “over-fitting”. It is bad because over-fitting gives an exact but sometimes wrong result more often than an approximate but correct one. Cycle analysis, as another statistical method, has other advantages and disadvantages.