Forum Archive Index - October 2003

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

Hi Woody

First thing I object to is your use of the term 'F/A traders'.    Did it occur 
to you that if you use F/A you might be a 'buy and holder'?    Indeed as 
far as the income tax department goes I imagine the number of F/A 
traders is almost nil, since to admit to being a 'trader' will disadvantage 
you for tax purposes.
 
>
>I believe that all the information about a Stock, Commodity,
> Currency or Bond is reflected in the Chart.
> 
> You have Price: Which is both a Fundamental and Technical Issue
> You have Time: Which is only a Technical Issue
> You have Support and Resistance.
> You have Cycles.
> 
> Price is what the Market is willing to Pay: Now all the FA traders do
> their research come to a conclusion and from this they formulate a
> Price, a value for the Market. The Buyers wont pay more and Sellers
> wont accept less. Now this creates a memory in the Market. 
>This memory is called Support and Resistance. 
>TA traders read this message and
> formulate from their charts that the Max Price for the Market is $x.00
> and the Min Price is $y.00. So they note the Support and Resistance
> lines on their charts. Now every time a price moves near a Resistance
> line both old and new. The Buyers hesitate the FA traders hesitate
> because their value indicators say DO not pay any more for this
> Market.  The TA traders do not need to say that they just watch their
> lines and they know that the Market will hesitate at the line or even
> stop. Now if the Majority of the FA traders decide that THIS is the
> Price then they will not pay anymore, so the Market stops. They TA
> traders are already prepared for this and place their stops there or
> Exit the Market. Now the FA sellers use their value indicators to tell
> them that this is a good place to sell, WE HAVE SOLD HERE BEFORE. 
>( Hence a Cycle )  
>

You were going well, but I think your logic just derailed.    An F/A 
analyst will have an idea of fair value and well sell if a share becomes 
grossly overvalued.  If a trader is riding a trend they will generally be 
late to exit becuae they won't know that a trend has ended until it has 
ended (so to speak).  So the (reactive) traders profit will be lower 
because they are late to sell and were late to buy in the first place.

>
>The TA traders already know this from their charts in
> fact they can often PREDICT this price and the time it will hit this
> Resistance area by Simple Maths. 
>

You are speaking too generally here.  I know for a fact that Phaedrus 
uses a purely reactive trading system and does not try to predict 
anything.  The advantage of your system is that if you can pick the top 
in advance you will sell out at a better price than the likes of Phaedrus.

This disadvantage of your system is that a support/resistance line only  
holds until it doesn't hold.   In other words selling at a support line does 
not guarantee that a share will not go higher.   Buying at a resistance 
line does not guarantee that the share price will not go lower.    One 
way to see if the support/resistance line will hold is to see if the F/A 
still looks OK if they are broken.   Even doing that is no guarantee.   
But investing is not about guarantees.   It is about stacking odds in 
your favour.   F/A can do this for you.  T/A cannot.  Let me explain why 
I say that.

Think of buying an antique clock as an analagous example.    I buy a 
clock for $2000 and stick it on my mantlepiece.  In two years time I 
offer to sell it to you for $2100.  Do you buy it from me or not?

I guess the first thing you would do is go and visit the antique shops 
and see what similar clocks are selling for.   Let's say most were priced 
around $2200.    So the facts are clock prices are on an uptrend and 
you have a chance to buy one at less than market price.    So do you 
buy it from me?  I will be interested in your answer!

> 
>SO YOU SEE FA TRADERS:  You do all the work for us we just read
>between the lines. YOU spend hours researching this and that so that
>you can create a Support and a Resistance line that repeats 
sometime
>for weeks, sometimes for months and even for years. So thank you 
FA
>traders for all your hard work we TA traders just need to spend a few
>minutes interpreting your HARD WORK to make a trade.
> 

Your trust in the work of F/A analysts is admirable.    However, what 
you see as a share price is simply an averaged guess amongst all 
market players.  It doesn't give you any idea of what could happen 
should some of those F/A assumptions you are so confident are 
correct go wrong.

SNOOPY



--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"You can tell me I'm wrong twice, 
but that still only makes me wrong once."


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