SwingTrade Member Forum

[Rawnoc]

As it happens, Victor Niederhoffer and Laurel Kenner, the authors of a new book*, have examined a host of different technical indicators, including head and shoulders patterns and Japanese candlestick measures such as "three black crows". None has passed the test of statistical significance; in other words, investors could not rely on them to provide signals to buy, or sell, stocks.

Indeed, there is even a Federal Reserve paper on the issue of "head and shoulders" patterns. Its author, Carol Osler, tested the patterns over 31 years and found that trading in individual equities based on such patterns is, on balance, unprofitable.

As Niederhoffer and Kenner write:

"The problem with technical analysis is that practitioners and advocates fail to follow standard scientific procedure in presenting and evaluating its techniques. Technical analysis is so rife with subjective interpretations that it must be regarded as more of a religion than a method, complete with priests who bewilder the unwashed at high-priced seminars."


http://www.dailyspeculations.com/Letter/reviews061003.htm