Editing 2101: Technical Analysis
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At this particular point, Randall has drawn a couple of lines that appear to act as an "envelope" around the stock price, converging towards the point where the price turns around and rises in the "Slope!" section. A technical analyst might say that such a convergence indicates that the price will turn around, but this annotation was added retroactively with the benefit of hindsight, like all of the annotations on this chart. If Randall had tried to make a similar envelope around the earlier sections ("Yikes" and "Wrong!"), before the "Slope!" had happened, he would have created a diverging (and descending) pattern, which he might have taken as a sign to sell and would have then missed the later rally of the stock price. More broadly, any two lines drawn over or around some part of the price chart must necessarily converge or diverge (the price would have to be perfectly periodic to produce parallel lines), so this "signal" is no better than a coin flip. | At this particular point, Randall has drawn a couple of lines that appear to act as an "envelope" around the stock price, converging towards the point where the price turns around and rises in the "Slope!" section. A technical analyst might say that such a convergence indicates that the price will turn around, but this annotation was added retroactively with the benefit of hindsight, like all of the annotations on this chart. If Randall had tried to make a similar envelope around the earlier sections ("Yikes" and "Wrong!"), before the "Slope!" had happened, he would have created a diverging (and descending) pattern, which he might have taken as a sign to sell and would have then missed the later rally of the stock price. More broadly, any two lines drawn over or around some part of the price chart must necessarily converge or diverge (the price would have to be perfectly periodic to produce parallel lines), so this "signal" is no better than a coin flip. | ||
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− | |Slope | + | |Slope |
− | |The {{w|slope}} of a graph is the ratio of the "vertical change" to the "horizontal change". A measure of slope on a financial chart can be used to predict possible | + | |The {{w|slope}} of a graph is the ratio of the "vertical change" to the "horizontal change". A measure of slope on a financial chart can be used to predict possible returns or losses, or to analyze those from the past, but Randall simply prints the word "slope" in his chart annotation, rather than labeling the actual numeric slope. This could also be a play on a second meaning of slope, meaning a rising or falling surface in general. |
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|Could be an omen? | |Could be an omen? |