Technical analysts love charts. They really love line graphs that track the performance of a commodity or a stock. In fact, they don’t stop talking about them, even if there’s a fire.
By cherry picking historical data on some price charts (while ignoring many others), they’ve come up with a series of “patterns” that they believe predict future events for a stock, commodity, or other asset's price. It's honestly a little closer to palm reading than it is to actual analysis.
Just picture a chart where a line traces a stock historically and then stops at present day. Based on historical patterns that chartists use, one can supposedly forecast that the pattern will continue into the future.
These continuation patterns attempt to indicate that price trends will extend into the future, and tell us if we should buy or sell right now.
Does past performance indicate future events? Uh...no. Which is why every single prospectus deck includes that warning about the reliability of past performance as a predictor of future performance before a fund asks for your money.
Continuations patterns offer zero scientific value, and are similar to playing black in roulette simply because red has come up 13 out of the last 20 spins. It’s pattern bias, and the odds of red and black coming up haven’t changed from 50-50 simply because of previous results.
Discovering whether or not someone is engaged in technical analysis early in an article is an easy way to determine if you should move on to read something else immediately. If continuation patterns were accurate, everyone would use them.
Given that technical analysis is to stock market investing as astrology is rocket science, “continuation patterns” should be ignored by investors.
Related or Semi-related Video
Finance: What are Triple Bottom and Trip...2 Views
Finance allah shmoop what are triple bottom and triple tops
All right well this is a triple top It wants
to break out The stock was trading down here around
five bucks a share in and glam o it went
up And yes blam o is the name of the
company's new anti constipation drug a huge hit So it
went up up up to hear it Fifteen bucks tripled
in value in just a few months but then sober
reality began to hit the investing community There simply wasn't
enough constipation to go around So the stock began to
flag and traded down teo here this level at twelve
bucks But then glam o again released big news a
partnership with manish of its grandma tsa and the american
cheese manufacturing association So the stock raced again to fifteen
But no there just wasn't enough enthusiasm from buyers pay
more than fifteen bucks a share for it So you
know that's all despite this newly created a kind of
market So the stock sank back to twelve only to
then have investment interest from procter and gamble owners of
sharman who bought five percent of the company at thirteen
fifty ish year and left a lot of investors thinking
surveyed by the whole company complete with its product line
of anti constipation drinks Waymo glam Oh thankyou memo But
alas the investment community would not pay up past fifteen
to share and the stock flagged again sinking back to
twelve having created a triple top and needing something to
make things really start you know going So yeah that's
a triple top What about a triple bottom Well a
triple bottom and basically just the same thing in reverse
like this keeps hitting a low point looking like it's
going tio bottom out further But then it recovers on
the subject of bottoming out well glam o is now
available in new chewable gummy form Yeah glam o so
you never have to worry when your bottoms out
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