Paul-
I am morally obligated to respond to your post because it just the kind of well-written, ostensibly valid, yet specious contention that can easily mislead a novice investor into foregoing technical analysis and the riches that ensue. While your viewpoint and its influence may discourage TA and diminish the likelihood of it ever being totally discounted in the market due to overacceptance, and this would be of benefit to me, I am obligated to let the truth be known and fight misconceptions that inexorably spawn evil and unhappiness in society.
That said, my recommendation for most investors is to employ the buy and hold strategy you pursue since it does not require the self-control, emotional mastery, (and knack for market sentiment appraisal) that successful short-term investing does. Given the feral and primordial nature of homosapiens, it may be advisable to not even attempt to tame the animal within. However, for those who want to self-actualize and unleash "mystical" money-making powers, I urge you to open-mindedly pursue Technical Analysis for the sake of both your dreams and the welfare of your children.
Regarding the studies you allude to which, obviously, were conducted by failed traders turned academe who were anxious to prove to themselves their inept investment performance was not the result of personal inadequacy.. well . . these studies are simply poppycock. Even a cursory view of many price charts and basic indicators like moving averages, show relationships which one can use intelligently and profitably. The key is understanding that some stocks behave more predictably than others, and this predictability may vary according to market sentiment and a myriad other factors. This is why I hold the view like many others that TA is part science and part art. A chart is never a chart, one price pattern at one point in time or trend may have much more predictive power that the same price pattern under different circumstances. Part of the "art " part is developing the experience and discernment to make such distinctions. This cannot be easily quantified in academic studies and any attempt will surely be futile.
I didn't "get" TA until after looking at hundreds of charts and having a pattern recognition epiphany (revelation, if you will). Immediately after this paradign change I became extremely successful, because I was now receptive to what the market was telling me. Most investors simply don't believe what a chart is telling them. (that is the most important statement in this whole post)
Saying a chart has no predictive value is ridiculous. Buy a stock that has been steadily moving down for months and see what happens . . . it will continue to go down.
There is no better indicator of sentiment for a stock than by its chart, which is a highly informative graph of the supply and demand for it. The validity of Technical Analysis if further enhanced by the fact so many powertraders on Wall Street use it, in many cases (not all) it is simply becomes a self-fulfilling prophecy. This explains the tendency of the market to move stocks to extremes both up and down.
Regarding literature on TA, I was so successful after assuming a TA perspective I thought it couldn't be true, so I went into a book store and bought many books on or by top traders. Low and behold, they all rely on TA. So regarding volumes of literature "against" TA, this is clearly a typically human example of selective learning. Top traders rely heavily on TA, and this is documented in many, many books . . just go to your local bookstore.
We can talk til we are blue in the face, but the fact I have tripled my whole portfolio (by trading in and out of many stocks) in just the last 2 mos speaks volumes. You may smell better than I do and have less of a propensity to hurl hearing-impaired elderly off of buildings, but this game is about making money and the proof is in the pudding.
Regarding CLE, they went up on Monday because of technicals, not because of some non-influential upgrade. They recv'd a more significant one yesterday and didn't budge . . hmmm.
Happy Investing!
jason |
