2/9/2024 0 Comments Rising wedge ta![]() ![]() The volume accompanying the pattern is also important. ![]() It looks like a flag on a flagpole, where the pole is the impulse move, and the flag is the area of consolidation.įlags may be used to identify the potential continuation of the trend. As technical patterns aren’t bound by any scientific principle or physical law, their effectiveness highly depends on the number of market participants paying attention to them.Ī flag is an area of consolidation that’s against the direction of the longer-term trend and happens after a sharp price move. Why is that? Isn’t trading and investing about finding an edge in something that others have overlooked? Yes, but it’s also about crowd psychology. These are some of the most well-known patterns out there, and many traders see them as reliable trading indicators. Some of the most common examples of these patterns are collectively referred to as classical chart patterns. Candlestick patterns can tell a useful story about the charted asset, and many traders will try to take advantage of that in stock, forex, and cryptocurrency markets. The idea is that by studying the historical price action of an asset, recurring patterns may emerge. Some traders will use indicators and oscillators, while others will base their analysis only on price action.Ĭandlestick charts present a historical overview of prices over time. The point I’m trying to make is that technical analysts get painted with too broad a brush and the maniacal, rotten apples give the sane ones a bad name.There are many different ways to analyze the financial markets using technical analysis (TA). But I’m no less skeptical of somebody reading financial statements and turning their analysis into market beating results. Yes, the majority of technicians fail to beat the market, but one can just as easily look at the results from mutual fund managers and throw fundamental analysis into a waste basket. To be clear, I’m skeptical of somebody’s ability to look at a chart and turn that analysis into market beating results. This distinction is really important and easily forgotten when we’re endlessly bombarded with the nonsense I’ve just shared. To me, technical analysis is not about predicting the future, but about managing risk. regional surface temperature of the Pacific Ocean… Those who owned S&P 500 stocks only when both the index and its cumulative advance-decline line were below their 50-day moving averages, as is currently the case, would have lost about 50% since 2012, according to FBN Securities.Īnd finally, stuff like this exists, which shows stocks vs. Here is another example from an article yesterday in the Wall Street Journal with the headline “Technical Analysts are Getting Nervous About This Market.” It included the following statement: A close below 17,992 would be very bearish. The Head & Shoulders Top with the neckline acting as resistance comes on top of a potentially bearish Elliot Wave irregular flat pattern and the fact that the index is now backing off from the old 2015 highs. Here’s a recent “Red Alert” example from HSBC: In addition to some of the crazy artwork, the patterns they’ll cite have names that sound ridiculous to the laymen a rising wedge, head and shoulders, three peaks and a domed house, etc. They’ll draw a few dozen lines, waves and retracements, and use a handful of oscillators. These outrageous claims are provided by technicians that abuse the charts. If stock prices are driven by earnings, how can a chart provide any insight? Well, yea, stocks are driven by earnings in the long-run, but in the short-run they’re driven by sentiment, which can be observed by measuring supply and demand.Īnecdotally, nonsensical forecasts seems to permeate from technical analysis way more than fundamental analysis, which is the main reason it often gets ridiculed (By the way, I’m not suggesting nonsensical forecasts aren’t ever driven by fundamental analysis, Dow 36,000 is a great example). ![]() It doesn’t make sense to them that you can look at past price movements and determine future price movements. There are a lot of people who don’t believe in the merits of technical analysis. Here’s Why Technical Analysis Gets a Bad Rap
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