We all use TA to help us in predicting future price movements. For example when we buy stocks at support we are predicting that the price should bounce back up soon . The foundation of all our analysis is on one MASSIVE assumption. I mean MASSIVE MASSIVE MASIVE assumption. The assumption is that the HISTORY REPEAT IT SELF. (if the stock has done good in past there is more chance of the stock doing as good in future) In a mathematical term we like to say … there is a correlation between past and future. I now like to summarize all our believes in 3 categories
We either believe
1) There is solid and Stiff correlation between past and future. (Me not phink so)
2) There is a Hinged correlation, between past and future i.e no correlation at all (Me not phink so again)
3) Or there is some correlation depending on the volatility of stocks, sectors to which stocks belong to, (Me phink so).
Both 1) and 2) can be modeled and rejected. (I refer all interested members to cracking wall street by james O’hara, 89 PP 23).
I am going to cut the story short. Technical analysis works far far better and most effective on the those stocks which show less volatility and are less erratic.Fundamentaly sound stocks show less volatility as smart money (institutions)does not panic selling on the back of a single down grade. On the light of this look for those stocks with sound Fundamental’s and apply technical analysis for your correct timing. (This of course does not apply to day traders or 3 days traders. I would say a medium term of say 3 month).
One day you thank me for this.
PS:-Most FTSE100 stocks show a small degree of volatility which is classed as noise in modeling stock movements.
[This message has been edited by Dr Iraj (edited 14-01-2001).]
We either believe
1) There is solid and Stiff correlation between past and future. (Me not phink so)
2) There is a Hinged correlation, between past and future i.e no correlation at all (Me not phink so again)
3) Or there is some correlation depending on the volatility of stocks, sectors to which stocks belong to, (Me phink so).
Both 1) and 2) can be modeled and rejected. (I refer all interested members to cracking wall street by james O’hara, 89 PP 23).
I am going to cut the story short. Technical analysis works far far better and most effective on the those stocks which show less volatility and are less erratic.Fundamentaly sound stocks show less volatility as smart money (institutions)does not panic selling on the back of a single down grade. On the light of this look for those stocks with sound Fundamental’s and apply technical analysis for your correct timing. (This of course does not apply to day traders or 3 days traders. I would say a medium term of say 3 month).
One day you thank me for this.
PS:-Most FTSE100 stocks show a small degree of volatility which is classed as noise in modeling stock movements.
[This message has been edited by Dr Iraj (edited 14-01-2001).]
