I have seen a lot of SI participants comment about
waiting until an indicator does this or that. For
example, waiting until Ascend breaking through the
descending trendline...this one I say recently on
this thread.
I just wanted to make a comment which may help those
using or starting to use TA in their trading and
decision making.
TA is a way of predicting the movement in a stock.
Fine. Some people bash it by saying that it is
meaningless, such that indicators and numbers of a
screen won't "tell" a stock where to go. Rather,
TA and charts is merely one specific representation
of market psychology...it is one way of trying to
make sense of the market, and does not may any
effort to try to move the market. Many of the indi-
cators used in TA are lagging indicators...that is,
they often confirm what has already occurred a short
period in the past...they are based on past information
and data. And so goes the argument of how lagging
indicators based on past data can predict the future.
The "predictive power" of TA should really be talk about
as the "probability of...". I use TA and various indicators
to give me a feel of the probability of a certain outcome,
as opposed to another outcome, occurring. TA is really
a means of helping you determine _what you chances are_
rather than an exact science which is foolproof...TA is
not based on axioms and proofs - this is not high school
math. For example, let's say you use 5 inidcators to
represent the direction of price movement. If only 1 of the
5 indicators "says" the stock will go up, but the other 4
"say" that it will go down, on which side - long or short -
are your chances the best?
Not to mention that even if all 5 of the 5 indicators say the
stock will go up, it doesn't mean that the stock can't plummet
either. You can't win all the time...just most of the time.
On the flip side of the TA-bashing argument is this: is
fundamental analysis always 100% correct? Of course not.
Nothing it 100%. You only need to be 65%+ correct to outperform
the market, coupled with disciplined stop-losses...
My personal opinion is that TA cannot be the only base for
a sound trading/investing program, nor can fundamental analysis.
There should be a balance of both. I rely primarily on a
technical indicator system, but also look at the fundamentals.
Ironically, some of the best trading stocks on a technical basis
are some of the most outrageously overvalued stocks. |
