Forum Archive Index - July 2000

["Mike Beal" <mike.beal@amb.co.nz>]

How to wind up traders...

 

From the Motley Fool:

 

Behaviours that are intermittently rewarded are the most persistent - thus the success of the myopic science of technical analysis.  Completely ignorant of the actual business dynamics represented by the company behind the ticker, the technical analyst relies on charts of past price movement that he swears foretell future stock appreciation.   It's much like driving a car by looking in the rearview mirror.  Nonetheless, technical analysts are occasionally right. 

 

The problem is they are right on an intermittent basis.  Which means they develop a learned response that becomes darn near impossible to distinguish.  All kinds of justifications, ranging from the sublime to the ridiculous, are given for why past performance determines future stock appreciation - in spite of the fact that Malkiel's tremendous book A Random Walk Down Wall Street clearly proved that no chart pattern had any predictive value above and beyond what was possible through pure chance.  Even technical analysts will admit their 'science' is really more art than system, saying that experience informs the reading of charts.

 

Keep on getting those intermittent pellets traders.

 

Excellent book by the way (A Random Walk Down Wall Street).

 

Mike.