Forum Archive Index - May 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus,

Thanks very much for your detailed explanation below.  Nice clear and 
not 'too technical' for us non techies ;-)

> 
>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, sideways from here on would not alter the fact that there 
>had been an uptrend, and it had ended. 
>

According to the simplified enlarged graph the period where the 
downtrend becomes evident is between the 22nd and 30th of May.
The downtrend seems to be determined by connecting the closing price 
on each day and looking at the trend of that.

However, I don't see why the closing price should hold any particular 
prominence over and above the opening price or any other price 
throughout the day.  For example if I put in a 'buy' or 'sell' order, 
I really have no control over exactly when the broker carries this 
order out. 

Following on the logic, if the timing of any particular sales have no 
particular meaning I could equally well define a trend line in any 
way as long as it goes through the range of prices on the days 
concerned.  And it would seem that I can draw a rising trend line 
through the same data points, where you, Phadreus, have drawn a 
falling one.

I also notice that the extreme price range for Frucor shares over 
these dates are between $2.20 and $2.33 which is a variation of 5-6%. 
  This is not an extraordinary number, given the volatility 
markets in general have experienced this year.  In fact if the 
overall market had fallen 5-6% over a week, some systems might take 
that as a good "buying in" entry price.  For the market had simply 
dragged Frucor down with it, and here was a good buying opportunity 
to get onto a rising trend, through a fall in price unrelated to the 
potential of Frucor itself.

>
>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 agree that if insider information leaking out is what is driving 
the share price down, then the chart could have predicative value.
But then, that sort of information leaking is illegal, and through 
increased public awareness, is now under the microscope much more. 
>
>
> 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.
>
>
Interesting final comment.   My past experience of people who use 
charts to buy and sell shares is that they use a 
fixed system and choose a share which has the liquidity to enable 
them to get in or get out when they wish.  Your comment leads me to 
believe that you don't actually need the perfect share to trade.  You 
can get around it.  Would you care to enlarge further?


SNOOPY
(still a bit of a sceptic, but is prepared to be enlightened should 
the evidence prove otherwise)


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