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In a message dated 97-12-28 23:21:06 EST, mr_bond@xxxxxx writes:
> With respect, I disagree. 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.
>
> > Your reasoning assumes that it is a function of
> > "fundamental" factors, which in the short term isn't really the case.
>
> Actually, I misstated this to some degree. In fact, I think that both
> price based technical analysis and funamental analysis have serious
> shortcomings -- and fundamentals even more so short term. Often the
> market will just shrug off a bearish economic report, for whatever
> reason. It just seems to depend on the "mood" of the market sometimes.
> My point was that the only real cause of price movement is buying and
> selling -- for whatever reason.
>
> > That's what TA is, though. Anyone who would say that TA is useless
> > obviously does not have any kind of understanding of it.
>
> 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. 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. Like I said, this is a very
> simplistic example, but I am just trying to illustrate a point.
>
> > Frankly, I wouldn't expect such studies to be of much value in this
> > time
> > frame, but if you can find something along this line which works, then
> > it would be worth looking at, at least as a supplemental indicator.
> > It
> > is important not to clutter the decision-making process excessively,
> > though.
> >
> 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.
>
Dave
What you are trying to get at I know is trying to detect
accumulation or distribution as one might find over a period of time in a
stock, and there has been a lot of work done on that. Also yes over longer
periods of time one can indeed use things like the advances and declines to
detect changes which can warn of market sentiment changing. BUT and this is
a very very big BUT. Here we are talking about short term intra day price
swings. You can research away, but what I think you will find is for
daytrading, the price is going to lead any other information.
A comment was made about the predictive value of indicators. Can
the indicators like the RSI predict price? Well almost not really, or to put
it another way, No, but... Many times you will observe things like when
the RSI, makes a higher high or a lower low for the day, then price will
ultimately continue in the direction, some more. Also most turns are
accompanied by divergence. Does not mean divergence automatically means a
turn, however.
My main, point is that in short term, ie daytrading, you are
going to find that any and all causitive things show up in price, before you
will see them elsewhere.
Pete
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