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At 11:30 AM -0400 7/13/98, Lawrence Lewis wrote:
>I think we'd be better off discussing the PREDICTIVE ABILITY of various
>indicators, rather than arguing semantics over whether something is
>leading or lagging. As far as measuring predictive ability, we at least
>have a ton of statistics that we can apply (e.g. confidence levels, etc.)
>so that we don't have to argue over semantics.
I would agree. I think the essential characteristic we are looking for is
repeatability.
> We know that if a price has been heading up, it is more likely to
keep going up (because people think it will and keep buying).
> We know that when price tends to get up to a resistance line, it
tends to turnaround (because people think it will and start selling).
> We know that when price breaks below an upward sloping trendline,
it tends to keep going down (because people think it will and start
selling).
Similarly with head-and-shoulders, flags, cup-and-handles, oversold reading
of the RSI, fib lines, etc. If enough people think something will happen,
it usually does because they make it self fulfilling. There is no
fundamental law that makes this happen, only learned behavior.
Of course, long term, the fundamentals determine the general range of
prices. But I think most short-range trading patterns are the result of
such psychological factors. If we learn to recognize these factors by their
effects on things we can measure, such as prices, volume, etc., or are able
to write computer programs to recognize them, we can trade them. Without
such predictability, price patterns would be random and trading would be
the same as gambling.
Thus, I cannot relate to a discussion of whether an indicator is leading or
lagging.
Bob Fulks
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