re: 50 Unfortunate truths about investing

quote:

---

Technicals are a self fulfilling prophecy. They work for no other than the fact that people expect them to work. The basis for technical analysis is absurd IMO, but it's been around for so long that people who use it have poisoned/influenced their own data.

---

But if they (technicals) work, then they work. It doesn't matter why. If other investors/traders swear by technical analysis, then it's a legitimate factor to take into account when making decisions to invest/trade in the capital markets. In essence our entire economy is based off future expectations. If you expect higher inflation in the future, you raise prices today, making that expected inflation a reality.

If you were a fund manager back in the late 90s during the Dot-Com Bubble who had stayed out of the tech stocks knowing that they lacked value, you would have still likely had to close your fund because your investors would have closed their accounts to invest with fund managers who chose to put money into dot-com ventures.

The gist of what I'm trying to say is that the markets are not rational. Pivot levels, head-and-shoulders, etc. shouldn't exist (but they do). Anomalies, such as the January Effect, 3COM/Palm spin-off, and earnings drift shouldn't occur (but they still do). Don't bash technicals just because you think they shouldn't exist.