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RJones2279@xxxxxxx wrote:
> 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?
NW: Other studies have confirmed that the H&S pattern at best only works
slightly better than 50% of the time. However, the failed H&S pattern, whereby
the market breaks out the opposite end of the consolidation has a much better
batting ave. Also, there should have been some measure of the percentage move
the market made when it did follow thru on the break out. Would it not be
worthwhile to use such a pattern, if only right 50% of the time, if when it does
break out you gain 1,000 points and when it fails you only lose 100 points? As
for someone ruling out techincal analysis just because one pattern doesn't meet
expectations is dismissing mondern medical science just because we have now
concluded that blood letting has not been proven to be beneficial in curing
disease. I sense that the author has axe to grind.
Cheers,
Norman Winski
>
>
> Bob Jones
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