Forum Archive Index - August 2001

["Ben Dutton" <bendutton@sharechat.co.nz>]

Thanks for your answer Phaedrus - certainly makes sense.

Best Regards

Ben Dutton


----- Original Message -----
From: "Phaedrus" <Phaedrus@techemail.com>
To: <Sharechat@sharechat.co.nz>
Sent: Thursday, August 30, 2001 3:04 PM
Subject: [sharechat] CEN Chart


> Ben,
>      In theory it is possible that technical indicators could sometimes
give signals that, given enough of a following, could move the market, and
thus become self-fulfilling. In practice the situation is not that
clear-cut. As with any other group, technical analysts cover the entire
spectrum ranging from long-term investors right through to intraday traders.
This large and diverse group of people are all using different indicators in
different ways and in different combinations. I just happened to use a
trendline in this case, but could have used any of 25 other common trend
indicators. Similarly, though I used a Stochastic oscillator, there are more
than 20 other commonly used momentum oscillators - all giving slightly
different signals at different times and with different interpretative
rules. Add to that the fact that individuals can (and will) choose different
time periods and/or trigger levels for each indicator, and it is clear that
there will never be an exactly coincident mass action by a majority of TA
followers, no matter what.
>    It is important to realise that technically derived signals are not
plucked from thin air. All they are doing is drawing attention to, or
quantifying, price movement that has already occured. In the case of most
Sell signals, for example, a drop in price has already occured - all the
signal does is blow the whistle. Anyone else selling now (regardless of
their methodology) will contribute to this downward trend and help "confirm"
the signal. The smaller and less liquid the market, the more it will be
pushed around by any concerted action, regardless of its source. Add to all
this the fact that technical analysis does not work well on lightly traded
illiquid stocks, and you will see that, while I think you could be right, it
is probably not a practical consideration.
>      <<<<< Would a sell signal be if the share price dropped below $3.30 ?
Mat. >>>>> That would depend on your trading horizon. A very short-term
trader would be following a fast oscillator such as the Stochastic, and
would have sold at the Close today at $3.47, as the oscillator crossed the
red signal line. A slightly less active trader would be looking to sell at a
pivot point reversal - currently this would be a Close below todays low of
$3.42. A medium-term trend follower would sell if (when) the price closes
below the blue trendline. This stock is in an uptrend - as I pointed out
there are over 20 commonly used trend indicators. The idea is to choose one
that suits your trading style and preferred level of activity.
>        Phaedrus.
>
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