The frontier between technical analysis (TA) and quantitative analysis (QA) is rather thin, though QA has better press these days. For example, moving averages are found in both TA and engineering like signal processing. Why would one be more noble than the other? I don't make any distinction between QA and TA methods as long as they remain testable.
Now, as systematic traders, we can draw an interesting parallel with cooking: the strategy being the recipe and its indicators the ingredients.
In cooking, nobody would expect to make a great meal out of combining random ingredients in an even more random way. In trading, however, it is not that uncommon. I call this thought-less backtesting.
The often missing question is a simple why? Why is this indicator part of the strategy? What are you trying to capture with it? What is its added-value? How can you tell whether it is working or not? Simple yet tough questions to answer.
I developed a short-only strategy that captures an intraday mean-reverting pattern that I found was repeating across a basket of similar securities. It did well historically and continued working decently after I started trading it. The strategy had a weakness however: the pattern wouldn't be strong enough to fight a solid bull market. In this adverse environment, short signals would keep being fired and with my short bias I'd get punched in the face.
So I added a technical indicator that would prevent me from trading in this environment. Which indicator? A simple 10-day moving average: if close(t-1) > sma(10, t-1), ignore signals on day t. Was it the best indicator for the job? Probably not. I tested a bunch of different indicators and ended up with this one because it correlates with rising prices, has a relatively short lookback period and is very simple. In other words, it does the job well enough for me.
Retrospectively (in backtests), filtering out signals was a losing proposition though: it hurt performance and had minimal impact on risk. From a pure quant guy's perspective, this was probably a suboptimal choice and chances are that he'd come up with an optimal (or rather optimized) solution much better than mine. This is where I believe qualitative thinking is required. I did not expect this filter to improve my edge - just to protect it. Insurance is not free, even if it's only for your peace of mind as I prepared for this 'worst case' scenario.
Is my approach better? I don't know. What matters to me is that it made (and still makes) sense and increased my confidence in this trading system.
So, do technical indicators add value? I would say that they can, but they are not the 'edge'. They are just tools that are useful for capturing this so called edge by enabling us, the traders, to quantify and identify trading setups that we've observed seem to work. I doubt that blindly applying technical indicators leads to success. Academic studies seem to confirm that naïvely applying technical trading rules doesn't work (yet still seem to think or hope that naïvely applying more sophisticated methods works :) .
Ingredients are not sacred. The art of cuisine is sacred. – Tanith Tyrr
PS: I'm a very bad cook. :)