Technical Analysis




Technical analysis deals in probabilities never certainties. As I have mentioned in my earlier blog entry, the stock market is not fully deterministic, we have to factor in the chaotic nature of human rationality. Even if the stock market is fully deterministic, it doesn't imply that we can get all the data from the charts alone.

As Pring said, the technical approach to investment is essentially a reflection of the idea that prices move in trends that are determined by the changing attitudes of investors towards a variety of economic, monetary, political and psychological forces.

He call technical analysis an art rather than a science. It is an art to identify a trend reversal at a relatively early stage and ride on that trend until the weight of evidence shows or proves that the trend has reversed. There is an axiom in the art of technical analysis and that is the assumption that people will continue to make the same mistakes they have made in the past.

Human behaviors and actions can never be precisely determined, but rather they can be plausibly predicted with a standard deviation. The tools and indicators that we use can only lower the deviation.

So when someone tells you that his chart is showing something certain, do not believe him.


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