If...
Enviado: 6/2/2005 11:38...one accepts that equity markets are not completely efficient and that investors can be
biased, it is possible that the study of past price movements may be worthwhile.
For example, academic studies show that, in the short term, price momentum appears to
persist. Successful fund managers, such as Hugh Hendry of Odey Asset Management, use
momentum as a check for their fundamental views; if the story is good, but the price is
going down, there is probably something wrong with the story. But it is a big stretch from
such analysis to the argument that all price movements follow a set pattern, or series of
patterns.
As it happens, Victor Niederhoffer and Laurel Kenner, the authors of a new book*, have
examined a host of different technical indicators, including head and shoulders patterns
and Japanese candlestick measures such as "three black crows". None has passed the test
of statistical significance; in other words, investors could not rely on them to provide
signals to buy, or sell, stocks.
Indeed, there is even a Federal Reserve paper on the issue of "head and shoulders"
patterns. Its author, Carol Osler, tested the patterns over 31 years and found that trading
in individual equities based on such patterns is, on balance, unprofitable.
As Niederhoffer and Kenner write:
"The problem with technical analysis is that practitioners and advocates fail to follow
standard scientific procedure in presenting and evaluating its techniques.
biased, it is possible that the study of past price movements may be worthwhile.
For example, academic studies show that, in the short term, price momentum appears to
persist. Successful fund managers, such as Hugh Hendry of Odey Asset Management, use
momentum as a check for their fundamental views; if the story is good, but the price is
going down, there is probably something wrong with the story. But it is a big stretch from
such analysis to the argument that all price movements follow a set pattern, or series of
patterns.
As it happens, Victor Niederhoffer and Laurel Kenner, the authors of a new book*, have
examined a host of different technical indicators, including head and shoulders patterns
and Japanese candlestick measures such as "three black crows". None has passed the test
of statistical significance; in other words, investors could not rely on them to provide
signals to buy, or sell, stocks.
Indeed, there is even a Federal Reserve paper on the issue of "head and shoulders"
patterns. Its author, Carol Osler, tested the patterns over 31 years and found that trading
in individual equities based on such patterns is, on balance, unprofitable.
As Niederhoffer and Kenner write:
"The problem with technical analysis is that practitioners and advocates fail to follow
standard scientific procedure in presenting and evaluating its techniques.