Validating Technical Analysis Patterns with Simple Statistics by F. Louis Floyd

Presentation: Monday, April 16, 2018 at 7:00pm

Abstract:

  • Stock market prices are the collective net opinion of all the buyers and sellers in the market. This net opinion
    • has an innate upward bias over time
    • varies randomly over time intervals less than a few years
  • Random behavior is well-described by simple descriptive statistics: central tendency, breadth, tail probability
  • Technical Analysis is an excellent means of
    • visualizing price behavior over time.
    • illustrating the simple statistics underlying price behavior
    • detecting trend changes, which are useful in making trading decisions.
  • Time-shifted moving average envelops can be employed to visually validate the concept of trading channels, which in turn supports their use for detecting future transitions (changes in trends).
  • Employing a plurality of multiple indicators is a convenient means of verifying useful buy/sell decision-making signals.
  • Time lags can be reduced by utilizing different indicator combinations for buy and sell decisions.
  • As always, the credibility of source data is critical, regardless of strategy. Simple noise filtering is the first step in enhancing data credibility.
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