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Explain xkcd: It's 'cause you're dumb.
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Technical Analysis
"I [suspect] that we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this 'paper economy', not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges." --James Tobin, July 1984
Title text: "I [suspect] that we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this 'paper economy', not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges." --James Tobin, July 1984

Explanation

Ambox notice.png 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.

Technical analysis is field which attempts to study stocks, cryptocurrency, etc. statistically, seeking to profit off of the patterns that are found there.

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: "allegro" and "prologue" (musical terms such as may be used in the introduction of a performed piece), "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 purports to be a quote from James Tobin (though it is not listed at Wikiquote) 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.

Transcript

Ambox notice.png This transcript is incomplete. Please help editing it! Thanks.



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