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This is an argument that is worth discussing, but this is the most
important point in my view. Stocks have no true supply or demand
factor, there is no intrinsic need for anyone to own a piece of
stock. While there is a need for commodities like corn, crude oil,
etc, this analysis can even be expanded to cover futures and their
initial creation for risk protection as a hedge. Technical analysis
works for supply and demand driven markets and stock markets are
random in nature due to its lack of supply and demand dynamics so it
leads to the thought why do you apply technicals to stocks? Maybe
luck and correlation of technical analysis is one and the same in
stocks. One more thing about sample. If you take sample of losers
you will get a losing result, but if you take the sample of winners
you get winning results. I never understood why anyone would include
losers in a sample of trading success. That would be like taking a
sample of all the bad basketball players and small number of pros
and say that shooting a basketball into a hoop is luck not skill.
This is similar to this argument. Those who say trading is not
technical and luck just don't get it and deny the constant winners
of funds and those who utilize their technicals.
KS.
--- In equismetastock@xxxxxxxxxxxxxxx, sebastiandanconia
<no_reply@xxxx> wrote:
> "...This is the sensational bit! You can use random
> noise, smooth it, and generate nice looking, systematic effects.
What
> Slutzky did and what shocked the academic world at the time was to
> mimic an actual trade cycle using only random noise..."
>
> Burton Malkiel ("A Random Walk Down Wall Street") describes an
> experiment where the outcome of coin flips (+1 for heads, -1 for
> tails, and doing a running total) is displayed on a stock chart.
> After a few hundred coin-flips, the resulting pattern of numbers
looks
> just like the activity of a "real" stock.
>
> These are not just meaningless egg-head, academic thought
> experiments. The implications are profound for traders/investors
> using most kinds of TA, including moving averages. If your
favored TA
> method can't distinguish between randomly-generated data and the
real
> thing, is it really measuring what's going on in the market or is
it
> just measuring the characteristics of a data-set?
>
> Since we know that most stocks travel together ("the rising tide
> raises all boats"), can any indicator that ignores the activity of
the
> overall market really be valid? Stocks also rise and fall based
on
> earnings, dividends and valuations. Can any indicator that
ignores
> these factors be considered valid? What about economic factors?
> Liquidity? Fed policy? Float size? Short interest? Volume?
>
> I stand by my original point that massive historical back-testing
> using the arbitrary mathematical formulas of the vast majority of
TA
> methods only produces unimportant coincidental correlations, and I
> would welcome any logical argument or proof that this isn't the
case.
>
>
> Luck,
>
> Sebastian
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