Forum Archive Index - November 2002

[Phaedrus <Phaedrus@techemail.com>]

Ruth,
     Technical analysis is the study of past market behaviour to determine the 
current state or condition of the market. (Rotella, 1992, p101) 

 Prices are not entirely random, and move in trends for significant periods of 
time. A trend is assumed to be in be in effect until it gives definite signals 
that it has ended. From historical data (there is no other sort!) we can see 
whether a stock is trending or not. The chart simply reflects the bullish or 
bearish psychology of the marketplace. This is important information, because 
we want to hold stocks that are in an uptrend, selling if/when the uptrend 
ends. We do not want to buy or hold stocks that are in a downtrend - nobody 
knows how low they will go. The price of a freely traded stock is the net 
result, the sum total, of all that is known about that stock by the market. 
(The market price discounts everything that drives buyers and sellers). In 
short, the market knows more than I do - that's why I follow it and do not 
attempt to predict it.

 Whether you base your buy/sell decisions on technical or fundamental methods, 
you will always be "investing in arrears", using historical data and 
assumptions that may or may not continue to be true. 

 There ARE, of course, times when the market is in a "temporal steady state" - 
when it is trending steadily up or down, or when it is going nowhere, crabbing 
sideways.

           Phaedrus.


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