Raymond -
I agree when you say that TA is a 'reactive science', because everything that TA outputs comes from past data.
However, I am surprised when you say that TA 'doesn't assume anything'. In my mind, there are assumptions inherent with just about ANY TA tool I've ever seen and used.
For instance:
1. Stochastic - the underlying assumption is that pros tend to trade through the end of the day, whereas amateurs tend to trade only at the first of the day. Therefore, when price closes near the high, the pros are bullish, and when price closes near the low, the pros are bearish. The indicator construction reflects these assumptions.
2. MACD - the underlying assumption is that you should buy the stock when it begins accelerating upward, and sell when the stock begins accelerating downward. The construction of the MACD Histogram (most often, the indicator where buy/sell rules are applied) mathematically reflect these assumptions.
3. Resistance/Support - the assumptions here are fairly obvious... it is assumed that at a support level, there are would-be buyers willing to buy, and at a resistance level, there are would-be sellers willing to sell. That's why a TA'er buys when the price bounces off a support level... because they assume that the buyers HAVE jumped in, and will drive the price back up.
Just three examples... if it weren't for the underlying assumptions, these three TA tools would just be mathematical exercises, instead of tools that over the years (and various markets) have shown their accuracy and usefulness.
Loren |
