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I have not seen that paper, but the NY Fed has done studies on the head
and shoulders too in the FX markets, and first said that it worked, and
then that it did not. There is a big problem with head and shoulders
studies in forex. A head and shoulders is not a head and shoulders if
the volume components are not correct, it is not a head and shoulders
and that info is not known for the FX market.
The Fed's study, by the way, used things that no technician would call a
head and shoulders pattern. I would not be surprised if the same can be
said of this study. And, as I said, without volume, the pattern is
almost meaningless.
As far as moving averages, that is technical analysis too, so saying it
does not work shows that these folks do not even know what they are
trying to disprove. The London School of Economics did a paper years ago
that also showed that moving average systems have positive returns that
could not be possible if TA did not work and if random walk was correct.
Wharton and MIT are set to start teaching TA because they no longer
believe in random walk either. These guys are just barking up the wrong
tree. Put them in with others for whom time has passed then by.
---
Steven W. Poser, President
Poser Global Market Strategies Inc.
url: http://www.poserglobal.com
email: swp@xxxxxxxxxxxxxxx
Tel: 201-995-0845
Fax: 201-995-0846
----- Original Message -----
From: <RJones2279@xxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Monday, November 29, 1999 11:31 AM
Subject: [realtraders] Tech analysis - waste of time? {01}
> Hi RT'ers,
>
> Read an interesting article here in England in the Investors
Chroniclebased
> on a paper :"Methodical madness: technical analysis and the
irrationality of
> exchange rate forecasts"(Economic Journal - Oct 1999)
>
> Have'nt read the original article but it studied the use of the
popular head
> and shoulders pattern as a predictor of currency movements( 6 leading
> cuurencies against the US $ - 1973 - 1994) and found it to be
useless.They
> said that where pattern did give good results it may have been because
of
> self fulfilling prophecy as so many traders use the technique.
>
> They said that profits could be bettered by using much simpler trading
rules
> - MA crossover or when current price is above recent levels are two
cited.
>
> Whilst the article studied the H & S pattern specifically the IC
intimated
> that a large part of tech analysis is a waste of time.
>
> Any comments?
>
>
> Bob Jones
>
>
>
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