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To: kodiak_bull who wrote (20747)	3/24/2003 4:48:51 PM
From: chowder	Respond to of 206191

>>> Steve Nison in a recent copy of Technical Analysis replied in a letter that a candlestick is only a candlestick if it's in the proper trend. <<< KB, I read the same article. He addressed the issue that too many people who use candlestick charting, or TA, only have enough knowledge to be dangerous. He spoke about the traders who ran around the office yelling, Doji, Doji, Doji, not taking into consideration of where the Doji appeared or the condition of the market. Sort of reminded me of Tora, Tora, Tora. The ineffectiveness of TA comes from trying to make the analysis fit our bias. It comes from analyzing the information in the wrong location of a price range. There must be a strong trend, in one direction or the other, to greatly improve the effectiveness of TA. For those who don't know what I mean, The DOW recently presented a text book example of a reversal pattern. On March 12, the Stochastic clearly showed the DOW was deeply oversold. On that day a hammer pattern formed. The significance of this pattern is that it formed at a time when we had a long down trend and the market was oversold. The pattern was accompanied by above average volume. It is these things taken in conjunction that indicated a reversal was coming. stockcharts.com[h,a]daclyiay[d20021024,20030312][pb50!b200!f][vc60][iut!Lh14,3]&pref=G The next day the move was confirmed in several ways. One was the gap up at the open, (for the more aggressive trader.) The Dow finished up on the day, following the gap. It formed a long white candle. It closed near the high of the day and it did so on even stronger volume than the previous session. It is "ALL" of these things combined that confirmed a strong move was coming. stockcharts.com[h,a]daclyiay[d20021024,20030313][pb50!b200!f][vc60][iut!Lh14,3]&pref=G The key to the effectiveness of the analysis and the "consistent" accuracy of TA has to do with a clearly defined trend in place before the reversal pattern appears. You must have a trend to reverse before a reversal can occur. The longer the trend, the more effective the reversal. Last night I was reading about the different types of technical analysis and how to best use them. On the one hand we have those who try to identify chart patterns. Head and Shoulders, Cup and Saucer, Flags and Pennants and even Elliot Wave. This type of analysis is purely "Subjective." They are subject to interpretation and not easily identified with statistical analysis. Where do you draw your trendlines? Extreme top and bottom of price ranges? Opening and closing prices? Only through areas of congestion? The means used to draw the lines or the way we view certain patterns makes it vulnerable to our own self-interest and bias. We see examples here recently of how people differ in their view of what the patterns are, where they are they located and how to analyze them. Base your decision on the wrong analysis and you get the wrong result. Then we have "Objective" analysis, the kind I prefer to use. Objective analysis can have the results verified using statistics and other mathematical methodologies. Moving averages would fall under the realm of objective analysis. The computer does the work for you and shows exactly the market behavior over the time frame you wish to observe. By being objective, you can identify support and resistance levels with more accuracy. By being objective, you can eliminate a lot of emotion from your trading. And, by being objective, you can eliminate your bias and trade with more accuracy, thus obtaining better results. From an objective point of view, RRI isn't a buy here, in my opinion. That doesn't mean it won't go higher. What it means is we don't have that clearly defined trend that insures accuracy and timing like the example used above with the DOW. Subjective analysis can be effective, but again, I think it needs to be used in conjunction with the clearly defined criteria I mentioned above with objective analysis. The reason I prefer moving averages is because I have an area, statistically verified, that identifies where the buying and selling should confirm the direction of my trade. If the move doesn't go my way, at that particular point, I know immediately that I made a mistake and I can correct it immediately to prevent from getting hurt. It takes patience for this style of trading, but it does enhance the accuracy and timing of the trades I have chosen to make. I've heard a lot of people recently telling me they don't have the patience for it. Funny! They seem to have the patience to wait for a bad trade to turn good, but they don't have the patience to wait for a good trade. We all have a certain level of patience, it's merely a matter of focusing it in the right direction. dabum