Rod Macpherson
Do you always have such strong opinions about things, or are there subject matters where you are more even-keeled?
You pose a good point, but I think that you're missing the larger picture. Technical indicators are not meant to predict the future. Nothing as far as I know can predict the future (nonlinear differentials included) and any claims as such should be disregarded. I agree with you in that there is a small part of the industry that sells technical trading systems and make claims to trading successes based on these systems. And yes, they dupe a lot of investors and traders into believing that they have found the key to riches.
As for the trading anecdotes that I am assume you are referring to, well, I have found that despite their redundancy and corny nature, they have proven to be solid words of advice. Its because of this, they have lasted and are passed on through the generations (see Reminiscences of a Stock Operator written by Edwin Lefevre, 1921, for plenty of examples).
Technical indicators, are designed to provide insight into buying and selling pressure in the marketplace. After all, stock price movement basically comes down to supply and demand. In most cases, technical indicators simply take prices and volume and attempt to extrapolate trends based on a stock?s supply and demand. The math behind them is simple (anyone can calculate an exponential moving average), but that doesn't invalidate their usefulness.
Now, you could refer me to Burton Malkiel's Random Walk Theory, which states that stock prices move in random motion and therefore, trends are not valid indicators as they are self-correcting. However, while I think that the Random Walk is valid in the long term, many people, including myself believe that stock prices move in non-random motion in the short term. The market is not as efficient as we would like to think. Evidence is provided by the numerous traders (again, including myself) that consistently make money trading with technical indicators. |
