The analysis seeks to predict future trends from the past. The proposals put forward are: the news is already in progress and feedback from buyers and sellers are repeated over time. The observation of the past proves that some graphic figures emerge repeatedly.
A bit of jargon
Like any discipline, technical analysis has its jargon. It describes a graph with a metaphor: Bullish candles, head-shoulders, triangles, floors … Alas! Today, candles are blown as they light up, heads fall into the shoulders, triangles symbolize not the risk of fracture of materials, floors give way when they were touching, the channels have their graphics banks collapse, the current slide toward the abyss … what is now the standard imaging chartistes since 3 October 2008.
The same tools for everyone
With the democratization of information, most market players use technical analysis software that is based on the same mathematical models. Supposed to reflect the psychological state of the market, the shape of the curves, the mathematical indicators of over-purchase or on-sales have become, over the years, a major decision tools. The scoring systems are now ongoing. Managers, working in real time, practice often a replica of a passive index.
Lack of hindsight and reflection
It is often criticized for technical analysis to generate its own predictions. Because everyone looks the same thresholds and figures, they become inevitable. In other words, this is not the dog, the real economy, the fundamentals, which moves the tail but the tail, the appearance of graphs and statistical arsenal to assess their likely evolution, which moves the dog.
Monitoring the trend is an imperative, it follows a succession of phases of increase or decrease manic, totally disconnected with the underlying reality.
The classical figures do not work
The sense of the individual manager is in the background as “the market is always right” one is always wrong against all. Since the middle of autumn 2007, market trend and economic conditions are like two scorpions enlacées running a deadly dance. Technical analysis is trapped.
Graphic sequences such as shoulders or heads-bounces “V” prefigured usually with a high statistical reliability, a reversal of situation. These sequences do not work anymore. It is the exception becomes the rule … as if it arose more than albino rhinoceros.
The volatility has taken over
Volatility, the most senior-and-bottom of each meeting, has exploded since January. It induces changes daily on a scale of 5 to 8 times the average. To measure, simply to observe the record levels achieved by the VIX volatility index, known as the barometer of fear, which has culminated in November to 89.5, while its historical average is between 16 and 20.
Theories for the analysis of the relationship between prices and volumes were shattered. We are witnessing a collapse of the volume of transactions with volatility at its peak. The Chartists are facing an unprecedented succession of air holes. Buyers and sellers appear successively subjected to annihilation. It was since 1987, the precursor to a reversal of trend for several weeks or months.
Today, the same signals have more relevance than just a few hours. This is not the analysis technique that does more, it’s just the time scale that contracts … as when approaching a black hole!
Back to Roots
The foundations of technical analysis were thrown at a time when the quotations were discontinued, the market places more independent and the flow of information more slowly than today. Finally, transaction volumes were less important. Since 1985, the Dow Jones, it was multiplied by 4 000.
Figures studied initially occurred at intervals of time longer. The news is probably already in progress, but the current interpretation of the technical analysis as well. Better to use this tool wisely and use the correct time scale.
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