Interesting read. (I think).

http://screwtapefiles.blogspot.com/2011/06/144.html

Yes it is - especially the comments by Jeanne d"Arc on the validity of TA:

"For example, the 144-day MA is now pretty famous. So all the buyers of size know/think that this is a good place to buy. So whenever the price bumps against the 144, they go all in, as the risk-reward is favourable. It thus becomes a self-fulfilling prophecy. This lasts until it doesn't - i.e. an external event pushes the price below the 144, and it vanishes as a tool as quickly as it appeared.

The fact that it's a Fib number can be explained by the same reasoning. The algos' buy points have to be set somewhere. The fact that people have confidence in Fib numbers, makes them self-fulfilling prophecies too. So the Fibs get programmed into the algos for as long as they hold.

I'm a believer in TA, but only because I know other people believe in it. I have bought gold at the 144 on a couple of occasions - but only did so because I reckoned the chart would convince others to do the same. Pure game theory. TA has no value without others' faith in TA - period.

It's also why I'm so bearish on silver at the moment - TA's almost impossible, because all the old 'rules' got broken along with the parabola. Yeah, it may go above $40 over the summer, or it might hit $28. Anyone telling you it's definitely one or the other based on TA is either mad, self-deluded, or a lier."

****

I basically agree with the above, but I've also found that paying close attention to volume helps a lot when analyzing charts. Silver is a good example, as I mentioned earlier. The really heavy volume came right at the end of the move, so you have a big chunk of buyers up there who presumably want to get out even, which would tend to cap any rallies until they're out of the way. The more failed rallies, the more people will look at the chart and say "this thing's headed south" at which point the self-fulfilling part of TA kicks in. Volume is a big clue to gauging psychology - most people don't like sitting on losers and the longer they do, the more likely they are to fold. Just human nature.

Volume is very important when dealing with smaller stocks - the larger stocks tend to trade off MA's and such, as noted. Volume doesn't tell you as much there because a lot of it is program driven.

I learned my TA from Stan Weinstein BTW. If you can find his 1988 book "Secrets for Profiting in Bull and Bear Markets" grab it. It covers all the basics and is as good a tool today as it was back then.

ebear