Can any techies explain this to me?

[mogley]

Ok so i'm trying to get my feet wet with some technical analysis. I am at work ATM but will download the incrediblecharts.com package at home and start incorporating some technical analysis into my fundamental approach.

Reading the following site...

Quote from www.taguide.com talking about resistance and support lines;

"In the case of Tyco above, when it finally broke below $40 around January 2002, the price subsequently collapsed, as is often the case when stocks break below support. As you can also see, there were times when the stock went slightly above or below the support and resistance points but went back””you might call those times “fake outs.” "

I can't seem to get my head around how yuo can make a general blanket statement about stock movements and say that when a stock breaks below support, it will collapse. Is this based on statistics and probability?
Each stock is influenced by its own unique forces, and unless these forces are the same every time such an event happens I don't see how you can make such a statement.

To me it's almost like those people at Star City Casino who record the outcome history of roulette rolls. I just don't understand why they do it and how they can rely on thinking they can predict patterns when it is theoretically impossible. I'm willing to concede with the stock market however that the human factor and other 'predictable' variables influencing share price can be manipulated to produce 'predictions'.

But a simple blanket statement such as the above without being qualified for X and Y variables? Is the guide being too simplistic? Or is it really just that simple? (Dangerously simple i might add)

 

[watsonc]

When a stock breaks support it will almost always slip a significant amount. This is because many people place their stop loss orders just below the support line - and hence they are all triggered at once if support is broken.

 

[GreatPig]

Generalisations are always wrong...

 

[karmatik]

Ok so i'm trying to get my feet wet with some technical analysis. I am at work ATM but will download the incrediblecharts.com package at home and start incorporating some technical analysis into my fundamental approach.

Reading the following site...

Quote from www.taguide.com talking about resistance and support lines;

"In the case of Tyco above, when it finally broke below $40 around January 2002, the price subsequently collapsed, as is often the case when stocks break below support. As you can also see, there were times when the stock went slightly above or below the support and resistance points but went back””you might call those times “fake outs.” "

I can't seem to get my head around how yuo can make a general blanket statement about stock movements and say that when a stock breaks below support, it will collapse. Is this based on statistics and probability?
Each stock is influenced by its own unique forces, and unless these forces are the same every time such an event happens I don't see how you can make such a statement.

To me it's almost like those people at Star City Casino who record the outcome history of roulette rolls. I just don't understand why they do it and how they can rely on thinking they can predict patterns when it is theoretically impossible. I'm willing to concede with the stock market however that the human factor and other 'predictable' variables influencing share price can be manipulated to produce 'predictions'.

But a simple blanket statement such as the above without being qualified for X and Y variables? Is the guide being too simplistic? Or is it really just that simple? (Dangerously simple i might add)

The reason for the TYCO price crash had nothing to do with statistics or probability, instead there was a board of management scandal and all sorts of dramas whereby the company nearly folded at the time and has been recovering slowly ever since. Earlier this year the company split into three separate entities.

In essence what Im trying to say is TYCO is a bad example to use for technical analysis....

 

[mogley]

The reason for the TYCO price crash had nothing to do with statistics or probability, instead there was a board of management scandal and all sorts of dramas whereby the company nearly folded at the time and has been recovering slowly ever since. Earlier this year the company split into three separate entities.

In essence what Im trying to say is TYCO is a bad example to use for technical analysis....

In other words, it's a bad example because there is a fundamental cause behind the decline? I think a fundie would have had much more foresight into the TYCO crash VS a pure techie. Shows the limitations of being a techie I guess.

 

[Timmy]

the price subsequently collapsed, as is often the case when stocks break below support.

Mogley, did you put that in bold font? It says often, not always. What does often mean? Define that and you can test it with rigour.

I think watsonc is on the right track with the comments about stops under support, logical place for stops to be clustered and this selling can trigger a rapid down move in price.

Used properly, technical analysis is about gathering information from the price movements. For instance, the situation might arise where the price falls below a support point and then proceeds NOT to collapse. Is there information in this behaviour? Can it be used to trade with? I would answer yes to both.

Are there some situations (i.e. I refer to price behaviour leading up to the move below support rather than any "fundamental" situation - I will assume the fundamentals are unknown) where a price move below support is more likely to trigger a "collapse" than others? Yes to that also.

If you want to embark on a study of technical analysis by all means get hold of a few of the basic texts, but read them critically, which it appears you are already doing.

Technical analysis often (there's that word again) works best when it is not employed in a linear manner, if that makes sense.

 

[Trader Paul]

Ok so i'm trying to get my feet wet with some technical analysis. I am at work ATM but will download the incrediblecharts.com package at home and start incorporating some technical analysis into my fundamental approach.

To me it's almost like those people at Star City Casino who record the outcome history of roulette rolls. I just don't understand why they do it and how they can rely on thinking they can predict patterns when it is theoretically impossible. I'm willing to concede with the stock market however that the human factor and other 'predictable' variables influencing share price can be manipulated to produce 'predictions'.

But a simple blanket statement such as the above without being qualified for X and Y variables? Is the guide being too simplistic? Or is it really just that simple? (Dangerously simple i might add)

-----



Hi mogley,

Simplifying TA to analyzing the price axis alone is always going to
return only HALF of the information available, in any stock chart.

In fact, analyzing the price axis ALONE, in an effort to determine
WHEN we should exercise our trade entries/exits, seems to be
fraught with danger, from the outset !~!

If we analyze BOTH price and TIME axes, then we can marry the
information with past trading patterns and reactions, often
providing an edge over other traders, by making our trades, earlier.

-----

For most markets, a good techie with the right tools may well be
able to anticipate a negative period ahead ..... even Tyco ....

have a great weekend

paul



=====

 

[mogley]

Cheers guys
One step closer to not losing my mind.

 

[karmatik]

In other words, it's a bad example because there is a fundamental cause behind the decline? I think a fundie would have had much more foresight into the TYCO crash VS a pure techie. Shows the limitations of being a techie I guess.

In a way yes, as fundamentally you would have an understanding of the board of management. However, I dont think anybody would have known how bad the situation was. Remember, TYCO are one of the biggest companies in the world with about 300,000 employees in nearly every country. You wouldnt expect to have bad management in place to look after such a monster.

 

[explod]

Ok so i'm trying to get my feet wet with some technical analysis. I am at work ATM but will download the incrediblecharts.com package at home and start incorporating some technical analysis into my fundamental approach.

Reading the following site...

Quote from www.taguide.com talking about resistance and support lines;

"In the case of Tyco above, when it finally broke below $40 around January 2002, the price subsequently collapsed, as is often the case when stocks break below support. As you can also see, there were times when the stock went slightly above or below the support and resistance points but went back””you might call those times “fake outs.” "

I can't seem to get my head around how yuo can make a general blanket statement about stock movements and say that when a stock breaks below support, it will collapse. Is this based on statistics and probability?
Each stock is influenced by its own unique forces, and unless these forces are the same every time such an event happens I don't see how you can make such a statement.

To me it's almost like those people at Star City Casino who record the outcome history of roulette rolls. I just don't understand why they do it and how they can rely on thinking they can predict patterns when it is theoretically impossible. I'm willing to concede with the stock market however that the human factor and other 'predictable' variables influencing share price can be manipulated to produce 'predictions'.

But a simple blanket statement such as the above without being qualified for X and Y variables? Is the guide being too simplistic? Or is it really just that simple? (Dangerously simple i might add)

It has been my view for some time that the answer is following trends. I believe broadly that T/A is trend following with varying time frames. The variations of buy and sell orders should be part of it. A successful Day Trader of 40 years Darryle Morley gave me an interesting example on the chart action of Telstra Two leading up to its fall. He called the rises, "Institutional Push Ups" and they can be recognised by an examination of sale sizes in the rise and fall periods.

Another good one is the resistance of a stock to rise past a certain point. Most often it will be seen, even years back that a lot of buying occurred at that point. These old buyers have been waiting till the price got back up there to unload, not being able to bring themselves to ever sell at a loss. Never mind what they could have done with the lesser amount over that time period.

I have always loved playing with statistics, probabilities and trends. You mention roulette. Interesting as this is my favourite hobby, and I am not a gambler. I am one of those who records the spins. I have found that each wheel has different manufacture variations, and dealers each have different ways of spinning. These physical varialbes can be plotted and biases on some wheels nicely overcome the house edge of 2.5% on a single zero wheel.

As an investor/trader I mainly rely on fundamentals with trend following so instinctively look for the type of events outlined above. My study has made me appreciate the T/A aspect as well.

So there are plenty of good avenues to follow

cheers

 

[Homer1]

Simplest answer to this as follows:

Don't try to add "Fundamentals" into "Technical analysis", it will always confuse you. Talking interms of functions and mappings b/w X and Y variables, TA is is only a function of price action and volume. Blanket statment is generalising and of course it will not be exact as there will always be exceptions. In case of stocks, to some, there could be more exceptions than the rules. However, there are certain facts, not likelihoods or degrees of certainities which guide TA, such as that market moves in waves and human behavior represents growth pattern over time (refelect as price actions).

Whilst generalising, words like "always", "must", "never" and alike should be avoided.

Yes statistics and probabilities play big part in reaching such generic statement and they should be made using words as "highly likely" instead of always. Japenese candle sticks are a good examples of providing with Likelihoods of reversals.

Regards,

Homer1