Seven Pitfalls of Technical Analysis

Guglielmo Maria Caporale and Alex Plastun

No 10213, CESifo Working Paper Series from CESifo

Abstract: This paper examines the main drawbacks of technical analysis. Although this is widely used by practitioners, from an academic perspective it can only be seen as a form of “voodoo finance”. In particular, it runs into the following pitfalls: Subjectivity; Doubtful assumptions; Unjustified algorithms; Low profitability; Data snooping; Statistically insignificant results; Unrealistic simplifications. The key conclusion is that it is high time that (self-fulfilling) technical analysis be replaced by more sophisticated time-series forecasting methods and models such as fractional integration, R/S analysis and autoregressive specifications .

Keywords: technical analysis; data snooping; financial markets; price forecasting; trading (search for similar items in EconPapers)
JEL-codes: C63 D84 E37 G12 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10213

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