Market Timing is a very popular topic among investors of all experience levels, ranging from amateurs to professionals. The idea of a perfect market timing ability or system is the Holy Grail for all traders. It is so heavily based on faith, to the point it is a religion. I believe that the shamans of this religion call themselves technical analysts.
Some anecdotal experiences with technical analysis. One friend (which shall remain un-named) in a trading contest out of 11, finished dead last with daily losses based on a TA system (close to last place since day 1). The allure is there, no research or understanding needed in the markets you trade, essentially a money printing machine. Another friend reluctantly admitted that technical analysis must work…for other people out there.
Technical Analysts try to bring some credibility to their religion by trying to introduce math, physics, and even nature into the equation. For some reason, very intelligent people are likely to believe in this religion.
The most absurd part of the TA’s religion is that they believe in Fibonacci ratios. The underlying rationale is that these patterns exist in nature so therefore should exist in the stock market. This paticular sect of the TA religion calls themselves the Elliot Wave Chartists.
CNBC always plays these vector vest commericals, the commericals claim that they can allow you to time and beat the market. First question that comes to mind is that if this trading system works so well why are they trying to sell it to the tens of millions of viewers on CNBC? When things sound too good to be true they usually are.
The sad fact of the matter is, there are suckers born every minute(literally). Most newborns 21 years later, go on to do things with negative expected value. Negative expected value actions include (playing slots, playing the lotto, trading on TA systems, driving while intoxicated, and so on and so forth).
For all the readers, please remember not all formula driven investing is technical analysis. Quantitative hedge fund strategies are not included in the technical analysis camp since they analyze and subsquently bet on different things such as market factors, convergence bets, arbitrage strategies.
The morale to the story? Everyone needs something to believe in from time to time. I believe that two things will always occur, death and taxes.
Happy New Year everyone, may they have a healthly, happy and profitable new year.
