----- 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
