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Does Technical Analysis Still Work in the Age of AI? "Yes."

Ex-Wall Street trader on the value of Elliott waves and other technical tools

by Vadim Pokhlebkin
Updated: May 30, 2018

Todd Gordon's resume includes two Wall Street firms and a long record of trading his own money. Today, Todd is the founder of and a regular contributor to CNBC shows like "Fast Money" and "Squawk on the Street."

On May 10, we sat down with him in our ElliottWaveTV studio to learn more about his very transparent, Elliott wave-based trading style.

In this clip: Why technical analysis still works in the age of computerized trading

Vadim: Of course, tracking and forecasting market psychology is the backbone of Elliott Wave analysis. The question we get sometimes is much of the trading these days is done by computers. Computers don't have emotions that we know of. Your experience and our experience continues to show that markets reliably show wave patterns across a variety of markets and across a variety of time frames. How do you explain that?

Todd: Well, my question to you, Vadim, is when the machines take over, will they be emotional or will they just methodically just take over the human race?

Vadim: That's the question.

Todd: We'll have to see. I'm going to take a page from Bob Proctor's book on this. I know his answer and you and I were discussing it 'cause it's such an important issue and it's one of the most common questions we get. Is technical analysis still valid in today's computer-driven market? I think it absolutely is because I firmly believe that emotion, those tendencies are programmed into the computer. It doesn't matter if it's you or I hitting buy or sell on our computer or if it's the computer triggering the entry, the logic as to why they are buying and selling a market is they're discounting a future event to create price change. Unless the computers know the data better than we do, which they don't, then it doesn't matter who's pulling the trigger. Those patterns are still programmed in. All you're talking about is who's executing the trades. Most of the algorithms that everyone talks about that gets everyone worried. Ah, I can't compete with the machines. They're momentum-driven algos. They're following just regular indicators. There's nothing that they're doing. Besides the HFT, we're really trying to get in between the bid-ask spread. That game is over. The high-frequency trading is not something we need to be concerned about. They're in positions for such a short period of time. I think that psychology is still very representative in today's price change. I think it makes it work better, especially on the downside, it's going to go faster when it goes.

Vadim: We saw that in February and January when the market crashed in a matter of days, what ten percent roughly?

Todd: The follow through on the downside is amazing. Computers are going to do it a lot more efficiently. Especially, they're not hitting bids selling the market. They're just stepping away from the market. That creates illiquidity when those machines come out so quickly and price falls. I think we can use it to our advantage but again, they're not smarter than we are in terms of discounting future information. That's all that markets are because it's a grand psychology experiment, trying to predict what's going to happen in the future.

Vadim: Of course, it's the humans who program computers in the first place.

Todd: Absolutely.

Editor's note: In the full version of this interview, you'll see Todd Gordon explain why technical analysis still works in the age of AI; examining Elliott wave patterns in QQQ and NVDA to see if the trades are ripe for harvesting, and much more. Follow the fast, free steps below to watch the full interview.

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