Diana, the problem with your analogy is that TA is a "home brew" methodology. With the advent of cheap PC's and the emergence of expensive charting systems, lots of investors (unfortunately IMO) are suddenly technical analysts. Now, the problem is that different technical analysts have differing "analysis" on identical historic data. Thus, there is no agreement as to how to interpret the charts.
To prove this point, I gave a seminar a few ,on this subject to a technical analysis club. I distributed a chart along with a historic price database to all of the attendees and asked them to come to the next meeting ready to discuss its implications. At the next meeting a very spirited debate ensued, but no concensus emerged as to the interpretation of the chart, although two strong, diametrically opposed camps emerged.
It was not their diverging positions that made this so interesting, it was the fact that the data were made up using a random number generator. In other words, the model was based on a statistical random walk.
Unfortunately, the majority of those attending the seminar felt that they had been fooled, and so the point I was trying to make was lost on them. However, several attendees did conclude that TA may be highly suspect.
Regards,
Paul |
