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RT's,
Curtis Arnold talks about trading failed H & S patterns in his good book
'PPS Trading System'.
Howard
>From: nwinski <nwinski@xxxxxxxxxxxxxxx>
>Reply-To: nwinski@xxxxxxxxxxxxxxx
>To: <realtraders@xxxxxxxxxxxxxxx>
>Subject: [realtraders] Tech analysis - waste of time? {02}
>Date: Mon, 29 Nov 1999 16:57:44 -0800
>
>
>
>RJones2279@xxxxxxx wrote:
>
> > Hi RT'ers,
> >
> > Read an interesting article here in England in the Investors
>Chroniclebased
> > on a paper :"Methodical madness: technical analysis and the
>irrationality of
> > exchange rate forecasts"(Economic Journal - Oct 1999)
> >
> > Have'nt read the original article but it studied the use of the popular
>head
> > and shoulders pattern as a predictor of currency movements( 6 leading
> > cuurencies against the US $ - 1973 - 1994) and found it to be
>useless.They
> > said that where pattern did give good results it may have been because
>of
> > self fulfilling prophecy as so many traders use the technique.
> >
> > They said that profits could be bettered by using much simpler trading
>rules
> > - MA crossover or when current price is above recent levels are two
>cited.
> >
> > Whilst the article studied the H & S pattern specifically the IC
>intimated
> > that a large part of tech analysis is a waste of time.
> >
> > Any comments?
>
>NW: Other studies have confirmed that the H&S pattern at best only works
>slightly better than 50% of the time. However, the failed H&S pattern,
>whereby
>the market breaks out the opposite end of the consolidation has a much
>better
>batting ave. Also, there should have been some measure of the percentage
>move
>the market made when it did follow thru on the break out. Would it not be
>worthwhile to use such a pattern, if only right 50% of the time, if when it
>does
>break out you gain 1,000 points and when it fails you only lose 100 points?
> As
>for someone ruling out techincal analysis just because one pattern doesn't
>meet
>expectations is dismissing mondern medical science just because we have now
>concluded that blood letting has not been proven to be beneficial in curing
>disease. I sense that the author has axe to grind.
>
>Cheers,
>
>Norman Winski
>
> >
> >
> > Bob Jones
>
>
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