{"id":6391,"date":"2011-07-13T08:35:14","date_gmt":"2011-07-13T03:05:14","guid":{"rendered":"index.php\/2011\/07\/13\/the-psychology-of-technical-analysis-ch-6\/"},"modified":"2011-07-13T08:35:14","modified_gmt":"2011-07-13T03:05:14","slug":"the-psychology-of-technical-analysis-ch-6","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2011\/07\/13\/the-psychology-of-technical-analysis-ch-6\/","title":{"rendered":"The Psychology of Technical Analysis: Ch. 6"},"content":{"rendered":"

\"PTA\"<\/a>A technical analyst knows the price of everything and the value of nothing.<\/strong><\/p>\n

The Rational Expectations Hypothesis<\/a> is based on three interlinked assumptions:<\/p>\n

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  1. Individuals do not behave irrationally\n
  2. Individuals learn from their mistakes\n
  3. Individuals arrive at their decisions independently of one another<\/li>\n<\/ol>\n

    However, REH fails in the real world. Natural forces encourage people to herd<\/em> together as groups. Groups <\/em>behave as single organisms that respond in predictable ways to new information<\/em>, have their own emotional cycles and follow a definable path of growth and decay. This is the rationale for technical analysis.<\/em><\/p>\n

    Technical analysis assumes that prices reflect the entirety<\/em> of investors\u2019 expectations of the fundamentals (both economic and company specific). Financial markets will always be trying to anticipate<\/em> the future and hence market prices precede<\/em> changes in fundamental conditions. And most importantly, each price movement is mathematically related to preceding price movements.<\/p>\n

    Read the review of the first few chapters here<\/a>.<\/p>\n

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