Stock charts are used by traders to forecast price action. These
patterns are useful, but they are certainly not infallible. Rather than
using them for market forecasts, I prefer to use patterns to develop
complete trading strategies. Each pattern offers a forecast of the
potential gain and a point where that forecast is proven wrong by the
market action.
There are many investors who don't use chart patterns. In A Random Walk Down Wall Street,
author Dr. Burton Malkiel showed that investors could not tell the
difference between charts generated by actual market movements and a
random number generator. Of course, Dr. Malkiel is correct that the
patterns show up in random data. But that has nothing to do with whether
or not the patterns are useful. (more)
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