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Investment Analysis Clubs / Macro Economic Trends and Risks


Subject:  Re: Technical Analysis Idea Date:  4/22/2013  9:23 AM
Author:  OrmontUS Number:  421177 of 535110

Back around a gazillion years ago, in a largely analog world, I was working on creating a multidimensional model which could be displayed in a two dimensional world (a color CRT tube). It's easy to imagine a three dimensional image, but by considering adding shape (say distorting a virtual object between planar and a curve at any given point), color gradient at any given point and appearance of texture at any given point, a visual object could display a large number of simultaneous dimensions (hopefully in a way that would be useful).

While pretty cool, and possibly still useful, this is more of a qualitative technique and depends on our personal evaluation. Yoda brings up a good point that both the frequency and time domains are involved and the first step is to strip each individual waveform out from the mess.

While harmonics are easy to calculate, the fun comes in when we consider how the shape (over time) of each wave affects some of the others. That this affect is non-linear in many cases makes the analysis a bit funky. It is the creation of this model which will determine part of the success of a financial institution's use of the data.

Simple or exponential moving average crossovers are simply anecdotal - except so many people use them that their actions become self-fulfilling prophesies in many cases (and when they don't - there is a shrug and the statement "well it was only statistical). The same is true for many other "rules". So these rules add a preference or bias which should be included in the model (what others think matters in this case).

Charts are useful, but don't get carried away with them unless you make the effort to deconstruct them first. On top of that, while the mechanical guys would roll their eyeballs up in the air - macro and politics matters. People change their strategy based on taxes, political climate, unassociated news, etc. and these very real factors have to be considered in real time (and can sometimes trump charts).

(Just some random thoughts)
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