I just wanted to add to some of my comments yesterday on TA, I was a bit rushed for time with that post.
Everyone has their own slight variation of the importance of different aspects of TA, and just as FA investors can fall in love with a position, the same holds for a lot of TA investors/traders.
People buy into a stock based on trend direction a lot of the time in TA, and put a stoploss on, either mental or in the market, but still many seem to change these over time (both up and down).
Once invested in a stock, a natural bias comes into play with an investor wanting to be 'right', to make money from the investment, so naturally looks more favourably on patterns that support the current investment.
For example the quoted 'reversal harami' from Friday's trading. From here on a bullish 'reversal harami'......... http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/Harami.html
"Bullish Harami: A bullish Harami occurs when there is a large bearish red candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. Again, the most important aspect of the bullish Harami is that prices gapped up on Day 2 and price was held up and unable to move lower back to the bearish close of Day 1."
The price of AVZ on Friday clearly went below Thursday's close, which negated the 'official' pattern, but an internal bias of long, made those looking for a psychological reason to hold, grabbed the concept of 'bullish harami' as it was a close fit. Even if the price had stayed above the Thursday close, it was still not a guarantee that the reversal was in. Statistically a 'bullish harami' will work x% of the time and fail y% of the time (I have no idea of the percentages as I do not follow that type of TA).
Where @h00ts is great for TA analysis on stocks, is because of LACK of bias. He does not trade stocks, so there is no bias in his reporting of his perception of TA action.
Even though I've been using TA for over 30 years, I am still aware of bias in my own TA of positions I hold, so an outside independent analysis, even using different criteria to my own is and always should be welcome.
Reading through many different stock threads, there is a common pattern. @h00ts is often asked to comment on the TA of a stock, and replies. If the stock is rising and @h00ts is bullish, everyone loves his calls. If the price is falling and @h00ts tells the faithful it is a very negative chart, he gets called biased/downramper/doesn't understand the stock etc etc.
AVZ Price at posting:
9.2¢ Sentiment: None Disclosure: Held
