Forum Archive Index - May 2001

[Phaedrus <Phaedrus@techemail.com>]

Nick,
That wasn't a small dip in Frucor's share price. The uptrend was over. For the first time in two months there were lower peaks and lower valleys - the usual definition of a downtrend. Whether the stock went up, down or sideways from here on would not alter the fact that there had been an uptrend, and it had ended. The chart was not vindicated by the ensuing price action - how could it be? It predicted nothing. It was not right or wrong. It merely recorded what had been. Have you ever considered the possibility that prices were depressed by insiders selling because of their knowledge of the impending negative report? The same (putative) insiders would have been buying had the news been good, pushing prices up, and the uptrend may not have ended. Idle speculation.
I like to hold stocks that are going up. When they start going down I sell them. Being a simple type of chap, I like to see the price action in pictorial form. Does this make me a chartist? Not if you define a chartist as someone who believes they can predict the future. Call me what ever you like - all I know is that I made 17% in two months on this stock.
Re the article in today's Herald by Mary Holm. I heartily endorse her total rejection of high-priced "black box" systems - especially those promising annual returns of 200 - 300% as quoted. I have spent years trying to develop a mechanical system that would suit all stocks and all markets, without success. I have found success through designing individual systems to suit each stock I choose to trade. The quote from Burton Malkiel ("The past history of stock prices cannot be used to predict the future in any meaningful way") while being quite true, is totally irrelevant. You are not trying to predict the future. You are trying to set up a system with an acceptable win/loss ratio that will, overall, return profits.
I know that many of you are very sceptical about all this, believing it is all done with smoke, mirrors, and arcane software written by knaves to make a trap for fools. In an attempt to show how simple technical analysis can be, here is a final (I promise) Frucor chart. It is a Swing chart, plotting the high and low pivot points of the price action. I have used price bars instead of candlesticks for the sake of clarity. Simple as it is, it got you out of this trade just as soon as a downtrend was confirmed - a full 5 days before the slump.
Phaedrus.

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