2101: Technical Analysis
| This explanation may be incomplete or incorrect: Comic is still undergoing TECHNICAL ANALYSIS (this is just the prologue). Do NOT delete this tag too soon.|
If you can address this issue, please edit the page! Thanks.
The theoretical value of a stock is the sum of all its future earnings, with earnings in the future discounted appropriately to account for the time value of money. Because these earnings are never fully predictable, traders may have different ideas about the true value of a stock, and buy the stock if they believe the currently offered prices are particularly low, or sell it when the prices are high.
Technical analysis, however, does not even attempt to understand the earnings of the stock, instead focusing on the shapes and patterns that result from traders making their moves. While there is a human behavioral component to stock trading, it is not clear that one can extract much information from the shapes of stock charts. To the extent it does work, a substantial part of its success may be simply an artifact of the herd behavior of traders who engage in technical analysis, a zero-sum game.
The comic displays a stock price chart, annotated with labels which purport to be technical analysis. These labels are nonsense from the perspective of technical analysis, but do accurately describe the graph itself: "allegro" (a musical term to set the tempo at the beginning of a score), "prologue" (an introductory opening section for a play, book, or similar), "lumbar support" (the thing in a chair shaped to better support your back), "bathtub" (possibly a reference to the so-called "Bathtub curve"). One label celebrates that "these two points define a line! Promising signal." (In Euclidian geometry, any two points define a line.)
The mouseover text is a quote from James Tobin (from his 1984 paper On the efficiency of the financial system) that raises a question of very talented people building systems to make themselves a lot of money without actually accomplishing anything worth money. This concern is perhaps not in and of itself about technical analysis, but more about the stock market and related trading ecosystems in general, in particular high speed traders. While it is not always easy to understand why certain forms of market activity might be valuable, and hard to put a price tag on concepts like "risk," "liquidity" and "price discovery," sometimes people are just working to trick others into bad deals, or forcing market participants to pay them unearned money. This may make the smart people a lot of money, but it does so by harming society, not helping it.
Interestingly, this comic appeared the day after Oxfam reported that the world's 2,200 billionaires had added 12% to their wealth in 2018, while the 3.8 billion people comprising the poorest half of the world's population had lost 11%. Perhaps this prompted what appears to be Randall's jab at those whose business is merely making money.
|This transcript is incomplete. Please help editing it! Thanks.|
- [A series of red and green box-and-whisker plots form a line that starts in the bottom left corner of the image and wiggles up to the top right corner, with a series of peaks and troughs that resemble a typical stock market diagram. The diagram is annotated with lines, arrows and text.]
- [Title in top left corner]
- The basics of technical analysis
- [A roughly horizontal section with mostly green boxes:]
- [A horizontal bracket encompasses the next three sections]
- [Slope becomes slightly negative. Mostly red boxes, bordered with a black line above and below:]
- [A roughly horizontal section with mostly green boxes, bordered with a black line above and below:]
- [Line curves upwards with mostly green boxes, with a dashed black line below:]
- [Three green boxes at minor peaks in the line are circled and indicated with arrows:]
- [A section with slight positive slope and a mixture of red and green boxes, with a solid black line below:]
- Lumbar support
- [Slope increases. All green boxes, with a black line through the centre:]
- [A sharp upwards incline, with two large green boxes:]
- Hark! The cliffs!
- [Two black dots and a dashed black line connect two major peaks:]
- These two points define a line! Promising signal
- [Inside trough between two major peaks is a roughly drawn black triangle:]
- [Slope becomes negative, mostly red boxes with a black line through the centre:]
- [At the lowest point of the trough:]
- [Slope becomes positive, mostly green boxes with a black line through the centre:]
- [Slight negative slope, with large error bars. Mixture of red and green boxes. One red box is marked with an arrow:]
- [Negative slope, all red boxes. Gap between two central boxes is circled:]
- [Line rises then falls. Mixture of red and green boxes with non-parallel dashed black lines above and below:]
- If I add some lines here I can convince myself I'm doing something more than just seeing patterns in a graph of a random walk.
- [Positive slope, all green boxes with a black line through the centre:]
- [One error bar on a green box is circled:]
- Could be an omen?
- [Arrow indicating peak:]
- Red + Green = Christmas!
- [Positive slope, all green boxes with a wiggly black arrow through the centre. A separate arrow points off the edge of the page:]
- Likely to continue forever
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