Forum Archive Index - December 2001

[Phaedrus <Phaedrus@techemail.com>]

 I do NOT support the "Efficient Market Hypothesis". This is based on the 
theory that markets are "efficient" in the sense that all information is 
discounted instantaneously, and further holds that prices fluctuate randomly 
about their intrinsic value, are serially independent, and that price history 
is not a reliable indicator of future price direction. In other words, trends 
do not exist. It holds that it is impossible to beat the market, and that a 
simple "buy and hold" strategy is the best. Sound like me? I think not.

 Every known method of forecasting from weather predicting to fundamental 
analysis is based completely on the study of past data. What other kind of data 
is there to work with? The field of statistics makes a distinction between 
descriptive statistics and inductive statistics. Descriptive statistics refers 
to the graphical presentation of data, such as the price data on a bar chart. 
Inductive statistics refers to generalisations, predictions or extrapolations 
that are inferred from that data. Therefore, the price chart itself comes under 
the heading of the descriptive, while the analysis technicians perform on that 
price data falls into the realm of the inductive. As one statistical text puts 
it "The first step in forecasting the business or economic future consists, 
thus, of gathering observations from the past." (Freund and Williams).

 Chart analysis is just another form of time series analysis, based on a study 
of the past, which is exactly what is done in all forms of time series 
analysis. The only type of data anyone has to go on is past data. We can only 
estimate the future by projecting past experiences into the future. 

 The entire field of technical analysis is based on three important assumptions 
:- 
(i) The market price discounts everything that drives buyers and sellers. 
(ii) Prices are not entirely random and move in trends for significant periods 
of time. 
(iii) Human nature is constant, resulting in recurring behaviours in response 
to similar situations and thus generating repetition of certain price patterns. 

It is axiomatic that anyone disagreeing with any of these assumptions will be 
philosophically opposed to technical analysis.

 I am heartily sick and tired of this endless repetitive and fruitless FA/TA 
debate, and will not be responding to any further posts on the topic. Some use 
one, some use the other, some use neither, and some use both. Let's agree to 
differ, and move on. 

              Phaedrus.

More references, in case anyone has not had a gutsful :-
http://www.sharechat.co.nz/archives/2001/06/msg00530.shtml
http://www.sharechat.co.nz/archives/2001/10/msg00357.shtml
http://www.sharechat.co.nz/archives/2001/06/msg00048.shtml

PS Hugh, just because I post a chart does not mean I endorse the company, and 
consider it fundamentally sound. I have never posted a chart on AQL. The chart 
on ITC highlighted an accelerating downtrend. Nice charts? They both looked 
grim to me. You also speak of what a share price SHOULD be. That is simply your 
opinion - the market has its own ideas. You are not omniscient you know!

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