Technical analysts love charts. They really love line graphs that track the performance of a commodity or a stock. In fact, they don’t stop talking about them, even if there’s a fire.
By cherry picking historical data on some price charts (while ignoring many others), they’ve come up with a series of “patterns” that they believe predict future events for a stock, commodity, or other asset's price. It's honestly a little closer to palm reading than it is to actual analysis.
Just picture a chart where a line traces a stock historically and then stops at present day. Based on historical patterns that chartists use, one can supposedly forecast that the pattern will continue into the future.
These continuation patterns attempt to indicate that price trends will extend into the future, and tell us if we should buy or sell right now.
Does past performance indicate future events? Uh...no. Which is why every single prospectus deck includes that warning about the reliability of past performance as a predictor of future performance before a fund asks for your money.
Continuations patterns offer zero scientific value, and are similar to playing black in roulette simply because red has come up 13 out of the last 20 spins. It’s pattern bias, and the odds of red and black coming up haven’t changed from 50-50 simply because of previous results.
Discovering whether or not someone is engaged in technical analysis early in an article is an easy way to determine if you should move on to read something else immediately. If continuation patterns were accurate, everyone would use them.
Given that technical analysis is to stock market investing as astrology is rocket science, “continuation patterns” should be ignored by investors.
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Finance: What is Technical Analysis?12 Views
Finance a la shmoop what is technical analysis okay we have fundamental [Fundamental analyst sat at a desk]
analysts who look at what the company does for a living how hard its products
are to manufacture how much they sell for how big global demand is how [Fundemental analyst check list]
powerful their brand is what their profit margins are in their growth
prospects from there how their balance sheet looks you know stuff like that
technical analysts don't care at all about any of that stuff those are
fundamental elements of a company technical analyst view stocks only as [Technical analyst chucks the list away]
trading sardines and really couldn't care less how the companies they are [Sardines with company logos on]
trading actually make money or run their businesses technical analysts follow
stock charts with influence from all kinds of shapes made by recent [Examples of shapes on a blackboard]
historical prices on a graph made by these stocks like you have a triple top
here right like so there's a hard line is trying to break out of that line line [Top line is highlighted]
says nook smacking you back down they can't break out so it's triple top and a [Hand smacks the price back down]
lot of gravity there so no maybe I'm short that stock at the end of that
triple top all right then you have the dome yeah it just kind of goes up but it
doesn't really want to break up so it's kind of trading down and then what do I
do with the stock here I don't know I don't know then you have descending tops [End of the dome is highlighted]
where Oh tried to break out oh but now it's a lower low because they miss their
earnings ah now it's a lower low and again they missed so the stocks going [Trend line showing the price going down]
nowhere it's pretty depressing around here then you have a saucer notably
shaped like a smiley face yeah you can see the two eyeballs there so you want [Smiley emoji appears]
to be long that stock somewhere in the middle there because
then it goes up and does better and yeah life's good and color and dimension gets
added to the stock charts via other technical things like volumes of shares [Colorful 3d stock chart]
traded in a given week or day or month if you're having a mini deja vu well it
might be because you just saw our M night Shyamalan dingdong
directed video directly cleverly called what is a Chartist and while they're [Girl working behind a computer]
basically the same thing technical analyst and chart us you know
same foot so yeah fundamental analyst concerned with nuts and bolts of the
operations of a business technical analyst concerned with pretty little [Descriptions of each analyst shown next to them]
drawings of the nuts and bolts reflection on a graph and interpreting
what that all means a kind of like staring at you know animal problems in [Looking at dung through a magnifying glass]
the jungle mental health analyst well I had to get a lot of these guys in their
office sorry different kind of therapy [Both the analysts at a therapist]
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