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economics Misc

Stock Markets : Defending Technical Analysis

I am not supporting ne FA or TA guru but the theories in general .

Stocks or any thing that moves involves ones estimation of the trends and flows that we know are related to the phenomenon under discussion . One has to base his play basic on know experience and ones rationalized creative imagination .This is how we operate in life and markets should be no different .

Fundamental analysis is about assessment of economical realities and its forecast ed impact on performance of investment vehicles lets say stocks . While we cant deny impact of fundamentals one need to also realize that the outcome is end result of a dynamic process and hence the result may vary .Take current crisis for example the Doller should be already in dumps by FA but the point is like Fundamental forces there are manipulative forces as play so the exact outcome always remains to be seen . This is where destiny of FA lies . He can be right about the outcome but not the events and sequence of it . The same applies to using financial ratios to access value picks .

TA in reality is our attempt to find patterns in the psychology of money movements . Be it a pure FA based market or fully manipulated ones or anything in between . The fact that its a multi player n multi force game patterns are bound to emerge . In that case if some one does use volume and prices and put that is some relation to keep his bets we really don’t have a reason to cry fool . The support and resistances and over bough etc are pattern fitting mechanism . SO is trend guessing based on divergences . The problem in not in the patterns people pursue or the methods of it . They are always there . The problem is treating them like gospels . I agree that events like Jan 2008 crash need not be forecasted by TA . But thats not what the TA is for . So long people stick to TAs definition as…. guide for bet formation all is fine .

Finally coming to the certainty aspects of it . In a multipolar dynamic system none be it TA or FA can predict the precise markets points , they can at max signal point where their theories start loosing relevance . For at such point the one betting should re look at things and the one who is theorist should re boot his pattern theories .

The so celebrated value investor in fact fits in to the same mould just that the indicators he used are primary and hence they make more sense .Its for the same reason they sound more believable and are often so. Even the value investor has to upgrade his pattern fitting based on competition and creative imagination [and occasional frauds :)] .

FnO operative is at max are mathematical tool that benefit from the time factors of the anomalies of the TA the FA and the forces and their interrelations that TA-FA rely on.

Give or take few , the approaches boil down to convention and conviction .
This is fate of all human activities based on derived indicators .

my views ..

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