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mr_bond@xxxxxx wrote:
> price action is the the end result of buying
> and selling, and therefore by definition must be the effect (the
> symptom) rather than the cause. Price is the final expression of an
> event, whether you think that event is supply/demand, or rising interest
> rates, or whatever.
Surely you'll admit that price action can (and very often does) have a
causal effect on further price action. While we could pass this off as
"increased supply or demand," in these cases it would be the price action
*causing* the increases. To the extent and degree that buyers or sellers
are influenced by price action in their decisions, it could be then said to
exert a causal influence on their behavior.
> I think that both
> price based technical analysis and funamental analysis have serious
> shortcomings -- and fundamentals even more so short term.
While nothing can predict price movement with certainty, certain short-term
models of TA can yield very impressive results. It is my view that the
serious shortcomings are more a product of interpretation and implementation
on the part of some practitioners, rather than being an intrinsic flaw in
the concepts themselves.
> My point was that the only real cause of price movement is buying and
> selling -- for whatever reason.
This would be the *proximate* cause, which is beyond dispute. We need not
even be concerned with the reasons behind this behavior, though - and they
are often very obscure in any case. Supply and demand models are extremely
complex, and are influenced by factors not readily assimilable. It is far
easier, if not much more effective, to simply examine patterns of effect to
predict future movement.
> All I am saying is that price based technical indicators, more often
> than not, have no predictive value. To use a very simplistic example,
> the fact that price closes above a x-day moving average says nothing
> about where price will be tomorrow, or the next day, etc.
Perhaps it does, but it is too insignificant to be useful.
> And people
> who use moving avergaes (just for example) in this way know this. They
> are not trying to predict price, they are trying to catch a trend -- but
> choppy markets can make for huge drawdowns.
They are trying to predict that the price will rise or fall over a given
period, which is essentially the same thing. Of course, moving averages are
not particularly effective in choppy environments, but there are other tools
which can mediate this problem. As a simple example, the trader could use
an x bar breakout in conjunction with his SMA's, which would reduce the
likelihood of being shunted.
> After all is said and done, I must concede I have absolutely no
> experience day trading, so you could be right and I could be full of
> crap. I plan to do some research soon.
I wouldn't say that, but it is very helpful to realize that, in very
short-term trading, you are simply dealing with patterns, and it is best to
set aside all the extraneous stuff.
Best of Luck,
A.J.
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