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Technical analysts claim that they can predict security price movements using a few variables including past prices, volume and time. Practitioners attempt to define areas of support and resistance to set buy and sell levels of securities in the hopes of getting high returns.
Support is a price level at which a security has had difficulty falling below in the past. Resistance is a price level at which a security has had difficulty rising above in the past.. Academic Support for TA In the Federal Reserve Bank of New York Economic Policy Review, July 1, 2000 there is a document titled "Support for Resistance: Technical Analysis and Intraday Exchange Rates" by Carol Osler that finds support for support and resistance levels. In her work, Osler concludes: "The results indicate that intraday exchange rate trends were interrupted at published support and resistance levels substantially more often than would have occurred had the levels been arbitrarily chosen. This finding is consistent across all three exchange rates and across all six firms studied. The predictive power of published support and resistance levels varies considerably across firms and across exchange rates. It lasts at least one week. The strength estimates published with the levels are not meaningful. These results are highly statistically significant and are robust to alternative parameterizations."Many words that say TA works! Academic Support against TA Burton Malkiel's Random Walk Down Wall Street is a MUST READ for anyone considering venturing into Technical Analysis. Malkiel says stock prices are random and individual investors are better off buying and holding onto index funds rather than securities or actively managed mutual funds. The book is written for the financial lay person so it is easy to understand. He says a broad range of index funds outperform actively managed portfolios in the long run plus the lack of trading expenses and management fees further widens the gap. Resources If you decide to venture in to TA, these books are great starting places: Technical Analysis of Stock Trends By Robert Edwards, John Magee / Hardcover Edwards and Magee is considered one of the bibles of technical analysis. DanG, a regular in our TA discussion, writes: "This is the first and best book I ever read on charting way back in 1966. It was based on the original work of Richard W. Schabacker, who wrote "Technical Analysis and Stock Market Profits" back in the 30's. They both deal with trend lines and with detailed chart patterns (head and shoulders, double tops and bottoms, broadening tops, etc.) which may or may not interest you" Go To Page: 1 2 |
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