Paul, I reluctantly disagree with your thoughts on technical analysis. I remember giving some guys trouble about their "Hamari candle" pattern etc. last year. I believe I even called it "black magic". I have a different opinion now. Here's why (please allow me to explicitly state some obvious assumptions):
1) What makes a market go up and down is buying and selling. This buying and selling is done by individuals...human beings. Under certain situations, human beings will have a predictable and somewhat consistent response to given stimuli, partially because our motivations are similar (make $$$, preserve wealth, minimize risk etc.) Given this, certain scenarios in the market will have effects upon people and make them react in predictable ways (ie. if a stock has some serious run-ups in the short term, a lot of people will want to take profits and sell etc.) Many of the patterns are counterintuitive unlike the example I just gave. Technical analysis attempts to capitalize on consistent human responses to market moves.
2) My brother purchased some software called OmniTrader that I played with for a couple of weeks. Perhaps some have heard of it. Anyway, it will apply all sorts of TA patterns to any stocks you choose, and will even search all traded stocks to find ones about to take a key reversal. It will offer suggestions and a confidence rating based upon the number of indicators that point to a certain move. About 95% of the TA it uses I am not familiar with. Anyway, it reports a success percentage for each stock and index it has offered a suggestion for. It is not uncommon for it to have 75% success ratings for many stocks. True, it is possible to have a 100% success rating by just buying once and holding, but the software will also reccommend short sales if you optimize it for aggressive trades. It was consistently able to make more money by going long AND short than if one had just been long, especially in volatile securities. With a 75% success rate, I was quite convinced that there is something to TA.
So, either the software is a fraud or there is "something" to TA, however I'm not prepared to commit my self to HOW much there is to it. I'm supposed to receive my own copy tomorrow or the next day. If you like, I will post what its recommendations are. We can use Dell as a Guinnea pig (I wonder if that statement will get KINGBULLBEAR shouting at me).
I have both puts and calls on Dell in anticipation of earnings...SOMETHING's going to happen, and I needed an exciting and expensive stock to test my first strangle on. Good luck to all.
Ted |
