The TA Dismissal
The myth: technical analysis is astrology for people who like data. Paul Tudor Jones called the 1987 crash from a chart. Made $100M that day.
Tuesday 23 June 2026 – Available on Spotify, Apple Podcasts, YouTube, Amazon Music
Where the Myth Comes From – What It Gets Right
Eugene Fama’s Efficient Market Hypothesis provides the academic backbone: if all available information is already in prices, studying historical price patterns to predict future movement is mathematically futile. The argument is coherent. It is also incomplete.
The EMH confuses two types of efficiency: informational and behavioural. Markets are highly informationally efficient. They are not behaviourally efficient. Human psychology produces recurring, measurable responses to price movements regardless of fundamental value. Fear causes panic selling at any price. Greed causes chasing at any price. Anchoring to recent highs creates resistance. Herding causes trends to persist far past fundamental justification. These are documented cognitive biases with measurable effects in price data.
- Informational vs. behavioural market efficiency – the distinction the EMH misses
- The academic evidence: specific peer-reviewed studies on momentum, trend, and volume
- What TA actually does: probability mapping, not prediction
- Where TA genuinely fails – specific use cases it was never designed for
- Three principles for using price action as tested, systematic edge
The Academic Evidence – What Has Peer-Reviewed Backing
Probability Mapping vs. Prediction
The myth frames TA as prediction: “this pattern means the price will go up.” Rigorous technical traders do not use it that way. The correct framing: given these specific conditions in price structure, volume, and momentum, what has the probability distribution of future outcomes looked like historically?
A setup does not say the price will go up. It says: when this specific structure occurs, price has continued upward on X% of occasions with an average gain of Y relative to the stop distance. That is a probability statement. Traded over a sufficient sample with consistent position sizing, a positive expected value in that probability statement compounds into a profitable system.
The 1987 trade illustrates this precisely. Jones identified structural conditions – acceleration phase followed by momentum divergence, mirroring 1929 – that historically preceded major reversals. He built a short position sized for the scenario. He had a defined exit if wrong. The chart quantified the probability worth positioning for. That is the correct use of technical analysis.
Where TA Genuinely Fails
Picking exact tops and bottoms. TA identifies conditions where reversals are historically probable. It cannot identify the precise tick where a trend ends. Traders who use it for exact reversal calls use it beyond its design.
Single-indicator systems. No individual indicator carries enough information to trade alone. RSI, moving averages, or candlestick patterns in isolation produce noisy signals with poor expectancy.
Low-liquidity and manipulated markets. Technical patterns require genuine price discovery. In thin markets, price can be moved to create false signals.
Three Principles That Replace the Myth
“I was looking at the 1987 chart and it looked exactly like 1929. The pattern was a carbon copy.”
– Paul Tudor Jones
“The trend is your friend until the end when it bends.”
– Ed Seykota
Episode Timestamps
Continue Learning
- Market Structure: The Complete Guide
- Fair Value Gaps: ICT Complete Guide
- Trend Trading: The Complete Guide
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