----- Original Message -----
Sent: Saturday, November 17, 2001 1:12
PM
Subject: Re: Re: [sharechat] Something to
think about for all you newbie chartists
In defence of TA
TWO
CHARTS
/\
1.
2 /\ / \
/\ / \/
/ \/
/ \ /\ /\
/
/
/ \/ \/
\/
Both these charts
show what has happened, neither can tell the future.
However by looking at the patterns it is
possible to see that chart two is
more likely to go up. Supposing this
is true 66% of the time.
33% of the time of
the time it will go down. Therefore with the use
of
of good money management techniques it would
be possible to make a profit.
There
will of course be losing runs, but providing you only use a small pecentage of
your overall betting bank then in the long run you should come out
ahead.
Its rather like betting on a
toss of a three sided coin, two sides with heads
one with tales. A silly gambler might put all his
money on one flip and lose the lot . The sensible person will spread the bets
out knowing over time he will come out ahead.
THE
DOWNSIDE
The problem starts when either
a) you have misread the percentages, ie didnt test the system out over a long
enough period etc.
b) Sucess or a long losing run begin
to affect your judgement resulting in poor decisions.
Back
in the u.k i used to be heavily involved in horse racing, even tried to make a
go of it as a full time punter. I suceeded in that i was able to make a
profit, where i failed was having trouble coping with the inevitable long
losing runs.
They can be very confidence sapping even when you
know that in the longrun better returns are made by backing horses in the
5-10/1 range. There are many people who say there is no such thing as a
winning system in horse racing. Believe me there are, many fairly
simple,however making a profit is only half the story.
What beats you isnt the odds but the
emotions.
Trading on
the stockmarket could i imagine be just as tough, its sometimes hard enough
just being a long term investor. When your portfolio has taken a
hammering its hard just looking at the prices without feeling
ill.
Being a short term trader must be much
tougher, imagine having a bad run where ten in a row go down and you lose your
brokerage and are stopped out each time. What happens is doubt starts to creep
in that your system may actually not work,you may become scared to act or find
yourself predicting signals to get in earlier, in short your emotions may
overide your objectivity.
Im sure it is possible with
dedication and an iron will to make a consistant living using T.A
however anyone who sees it as an easy option dont be fooled. For every
succesful trader there will be many who fail, and more thatn likely it will be
because of pressure not because of huge financial loss
Nick
See IRG research reports
