Technical trading analysis Essay Example | Topics and Well Written Essays - 2500 words

Technical trading analysis - Essay Example s assumed that the fund would definitely be interested in riding a wave but not to the peak but obtain gains much before the peak and go short somewhere between the bottom and the peak. Similarly the fund would not wait for the market to bottom out before taking a decision on going long and that it would go long once market moves down somewhere between the peak and the bottom. Either strategies would imply that the fund is not looking for excessive and speculative gains; nevertheless it does maintain inherent profit booking targets. The trading system explained below is based on trading rules that were tested for profits results based on this risk philosophy. Financial theory, taught in finance textbooks the globe over, normally exposes a student of finance to the concepts like the efficient market hypothesis and the economically rational individual. Bubbles and crashes seem to defy these two seminal concepts with an awkwardness equivalent to the awkwardness one would attach to those things on earth that defy gravity. Nevertheless such extreme stock market movements are a reality. Bubbles make investing decisions arduous as stock prices tend to deviate by substantial margins from their fundamental valuations. Investors relying on past company results and technical analysis are equally defeated in such situations as is the EMH.In fact, investors always act on the basis that they have an applicable construct to explain stock price movements and tend to input all available information collected under such constructs in their investment decisions (Poole 2000). Finance research has also held varying opinions on this issue. For instance, Bierm ann (1995) supports the idea that market prices are determined from backward looking investors than by those that indulge in predictions of all sorts. Others have, for example elaborated on the use of price to earnings ratios to determine excess market valuations. Some technical work has set to rest in a convincing manner the