the index,” he said, “because it works.”
A Disagreement That Speaks VolumesMany technical analysis (TA) practitioners, after reviewing one study or another showing that their favorite technique doesn’t work, object that we failedto consider volume. We merely point out that technical analysts themselvescannot agree on how volume might work. Hany Saad, our trader friend at theRoyal Bank of Canada, took all three levels of the CMT exams before becoming
Chapter 3 • The Hydra Heads of Technical Analysis
93
convinced that technical analysis does not work. He pointed out in a July 2002e-mail to us:Any technical analyst would argue that volume is 50 percent of the puzzle. Classical technical analysis suggests that a price move in certain direction should notbe trusted unless volume is flowing in the same direction of the move. In a bullmarket, for example (whatever that is), volume should be higher on up days thanon reactions. That’s in a nutshell how Magee’s theory goes. In fact, this is evenmentioned in Charles Dow’s letters as described by Hamilton in “The Stock Market Barometer.”Here is where it gets real funny. Your favorite technician, Richard Arms, developed an indicator called Ease of Movement. Here is a description of the indicator from “Technical Analysis from A to Z”:The Ease of Movement indicator shows the relationship between volume andprice change. As with Equivolume charting, this indicator shows how much volume is required to move prices.High Ease of Movement values occur when prices are moving upward onlight volume. Low Ease of Movement values occur when prices are moving downward on light volume. If prices are not moving, or if heavy volume is required tomove prices, then the indicator will also be near zero.The Ease of Movement indicator produces a buy signal when it crosses abovezero, indicating that prices are moving upward more easily; a sell signal is givenwhen the indicator crosses below zero, indicating that prices are moving downward more easily.So while Charles Dow states that volume should be there on up days of uptrends to generate a buy signal, Richard Arms suggests the exact opposite. Whoshould you trust? Neither. Studies conducted on volume as an independent variable prove that it has no predictive value whatsoever.Finally, you probably should know that if not for Vic, I would probably beusing the same TA tools I am ridiculing today.
Shouldering AheadMidway through the great crash of July 2002, a post came across our monitors from a publicity-shy hedge fund manager whom we call Mr. E. “The technical action in the S&P since the big-cap rally last week is being threatened bya massive head and shoulders going back to January 1998,” he wrote.Since his July 10 message, the S&P broke through its January 1998 lowsand headed straight down to April 1997 levels. On Tuesday, July 23, 2002, it fellbelow 800. By the usual methods of reckoning, the next stop for S&P futureswas 540. As for the Nasdaq 100, it looked to be headed for negative 2,690.
94
Practical Speculation
We asked John Lambert, who estimated the next stop as 540, if he wasjoking. He replied:No, it was actually a mistake. I graphically made a quick measurement from thetop of the head to the neckline and used the length of that line segment to “predict” the low. Alas, I was on a semi-log scale so I did not measure the “correct”number of points. Don Van made the measurement per Edwards and Magee andcame up with 300, close to what I get.Your query prompted me to remove Edwards and Magee from under the coffee table: “If the up move preceding the formation of the reversal area has beensmall, the down move following it may, in fact, probably will, be equally small. Inbrief, a reversal pattern has to have something to reverse. So, we really have twominimums, one being the extent of the advance preceding the formation of theHeads-and-Shoulders and the other derived by our measuring formula; whicheveris the smaller shall apply.”Well now, this gives me some leeway. What is large and small? When doesthe move preceding the formation of the reversal pattern start? Let’s define thestart of the move as a breakout in 1995. With a bit of engineering judgment, Icome up with 407 points preceding the formation of the Head & Shoulders pattern. Subtracting 407 from 540 produces 543. Let’s round this down, as TA isnot, shall we say, a completely precise science. I get a target of 540. It appearsmy initial calculation was not a mistake after all. That is a very good thing as I divided all of my money and bet half on 540 and the other half, using Rick’s famous advice, on 22.
Did the apparent predictive success of Mr. E’s gigantic pattern mean thattrading head-and-shoulders patterns works? And with the financial world’svery foundations seemingly about to crumble, did it matter?It always helps to know what works and what does not, particularly during panics. As the nineteenth-century author and journalist DanielDefoe documented in his account of London’s 1685 plague, worthless nostrums sell well to desperate people.18 It is important to keep aclear head and take the long view. As to whether head-and-shoulderspatterns work well enough in the stock market to be profitable—they don’t, aswe can show.Traders have used head-and-shoulders patterns since at least 1930. Thepattern consists of three peaks, the highest being in the middle. A horizontalline—the “neckline” is drawn to connect the troughs between the shouldersand the heads. The crossing of the neckline is supposed to signal that priceswill continue down away from the head.An inverted pattern is read as bullish. Figure 3.4 shows a hypotheticalhead-and-shoulders pattern.
Chapter 3 • The Hydra Heads of Technical Analysis
95
Head
Price
LeftShoulder
RightShoulder
NecklineLeftTrough
RightTrough
Time
Figure 3.4
Hypothetical Head-and-Shoulders Pattern
Hypothetical Head-and-Shoulders PatternWe believe that any wealth that accrued to Mr. E as a result of trading this pattern—and we congratulate him for it—was due to luck and not a sure indicator of future success. Any important question deserves to betested, however, and the results should be made public. Haphazard anecdotes, confident assertions and appeals to authority—even, or especially, our own authority—will not do.As it happened, shortly before receiving Mr. E’s missive, we came acrossa remarkable study, “Identifying Noise Traders: The Head-and-Shoulders Patterns in U.S. Equities,” by Carol Osler of the New York Federal Reserve.19After rigorous tests, she concluded that trading in individual equities basedon head-and-shoulders patterns is, on balance, unprofitable.Osler wrote a computer program to identify head-and-shoulders patternsbased on the descriptions in eight technical analysis manuals. She applied itto 100 firms with price data spanning July 2, 1962, to December 31, 1993, selected at random from the Center for Research on Securities Prices at theUniversity of Chicago. All the technical analysis manuals were ambiguousabout the criteria for exit, but they agreed that a head-and-shoulders patternsignified a major change of trend. Osler therefore wrote her program to require that a position be held until the price stops moving in the predicted direction, with a stop loss of 1 percent.Amazingly, given the lack of profitability associated with head-andshoulders patterns, volume around the time of the neckline crossing, the signal
96
Practical Speculation
to put on a trade, increased by as much as one-quarter of an average day’svolume.How to account for the popularity of an unprofitable trading strategy? According to Osler, certain peculiarities of the human mind may account for itsacceptance. People are prone to see nonexistent connections between groupsof things. They tend to be overconfident in their own judgment. And they remember pleasant or successful experiences (e.g., profitable head-and-shoulderstrades) with far greater clarity than they do unpleasant experiences.A few successes may bring the head-and-shoulders trader fame and funds,encouraging new entrants. As Osler notes, cognitive psychologists have shownthrough experiments that unrewarding beliefs and behaviors can survive along time when they are randomly reinforced.Many market players say they do not believe in trading head-and-shoulderspatterns or any other visual chart patterns, but they like to know what suchtraders are doing so they can eat their lunch. Lots of luck, says Osler. Even before transactions costs, trading against head-and-shoulders traders is just notprofitable in individual stocks. Another objection is that technical traders aresimply profiting from the psychology of uninformed individuals. The pointstill holds—selling after such formations is unprofitable, whether the trader isfamiliar with chart arcane or not.When Laurel interviewed her, Osler had accepted a professorship in theinternational economics and finance department at Brandeis, where sheplans to research the role of stop-loss and take-profit orders in the currencymarket. One area of interest is the possible clustering of orders at round numbers. She did not plan to extend her head-and-shoulders work to S&P futures.“Technical analysis is just not a hot topic,” she explained.Osler grew up in the Boston suburbs and attended graduate school atPrinceton after graduating from Swarthmore. An afficionado of both squashand ballet, she has avoided the risks of the trading floor, but enjoys taking academic risks. Ever since she went to the trading floor at Citibank to see howorder flow affected the currency market, she has been outraging the academicestablishment. “Order flow was an extremely unprofessional thing to careabout,” she said. Osler also fell astray of the norms by talking to traders, whomacademics widely view as too deceptive to yield valuable information. She recalls sending a colleague an e-mail outlining empirical evidence she had collected on a certain subject, and asked him what he thought. He wrote back:“First I’d have to see a careful worked-out model to see if it worked in theory.”“My primary goal is to understand reality,” she said. “That is not universally accepted.”
Chapter 3 • The Hydra Heads of Technical AnalysisTable 3.6
97
Zhang’s Five Incidences
Left Shoulder
Neckline Crossing
11/21/976/9/9810/23/005/4/0112/5/97
12/18/978/27/9811/20/006/13/011/11/02
Always ready to jump into the breach, we tested the head-and-shouldersstrategy on S&P futures prices beginning in 1996. Shi Zhang, one of Vic’sstaff members, wrote a computer program based on Osler’s description of herhead-and-shoulders algorithm.Zhang’s program specified that the time between the six points on a bearish head-and-shoulders pattern—the right shoulder, the right trough, thehead, the left trough, the left shoulder, and neckline crossing—had to be atleast five days and no longer than 180 days. Various price change magnitudeswere used to make sure that no patterns were missed.After running his computer nonstop for 10 hours, Zhang came up withfive incidences of the pattern, which he then evaluated for profitability 1, 2, 3,4, 5, 10, 20, 30, and 60 days out. The start and end dates of each point for eachincidence are shown in Table 3.6.Assuming that the trader took a short position at the neckline crossing, thereturns for different holding periods would have been as shown in Table 3.7.We conclude that head-and-shoulders trading does not work either as asignal of a trend change or as a profitable strategy.
Table 3.7 Returns for Different Holding PeriodsNumber of Days after Neckline Crossing1
2
3
4
5
10
20
30
60
Averageprofit / loss
0.5%
1.6%
1.3%
1.4%
1.4%
−0.5%
0.5%
−0.2%
−3.5%
Standarddeviation
0.01
0.03
0.01
0.02
0.02
0.03
0.03
0.05
0.11
98
Practical Speculation
Did You Really Expect a Straight Line to Point the Way?It is not surprising that simple techniques like extrapolating trends do not leadto consistent profits. All of us know from our childhood up that a key aspect ofwinning in games and other competitive situations is deception. The firstgame a child plays is peekaboo, and that may be our first step toward understanding that indirection is a better way to achieve goals than to lay all one’scards on the table. Animals practice deception, from the lowliest insect to thehighest primates. Adult humans are at least as knowledgeable as insects, andthey have the benefit of reading thousands of years of history going back to theTrojan horse. Certainly the shrewd traders in the market should be more capable of raising the level of trickery above that of extending a straight line.As the great New York Giants pitcher Christy Mathewson observed morethan a half-century ago: “Anybody’s best pitch is the one the batters ain’t hittingthat day. If they start hitting my fastball, they don’t see it anymore that afternoon. If they start getting a hold of my curve ball, I just put it away for the day.”20
Siege of Troy, 1184 B.C. (Artist: Milton Bond, 2001).
Chapter 3 • The Hydra Heads of Technical Analysis
99
On the battlefield, the best generals are the greatest masters of deception.Our favorite in this regard is Stonewall Jackson, acknowledged as the greatestleader in the Confederacy:A favorite device with him was to institute inquiries in the presence of the crowdaround him as to roads and watercourses in a direction which he did not intend totake; even to order maps to be prepared, and roads laid down, as though for instant use. Having thus set every gossip talking and predicting his intentions, hewould calmly march directly in the opposite direction.21
Vic was fortunate enough to have been raised on board games from theage of 3. His father was an avid checkers player, and as an adult, Vic took lessons for more than 15 years each in checkers and chess from two U.S. champions—Tom Wiswell and Art Bisguier, respectively. All board game playersknow that deception is one of the keys, if not the key, to success. Wiswellwrote some 15,000 maxims on checkers, a few of which Vic included in hisfirst book; we here present 10 from Vic’s unpublished collection that are particularly pertinent to deception:1. Minefield—On the other hand, there are many tricks, traps, and swindles on board, and you must keep a sharp lookout for them, or be ambushed and defeated. There is no safety guarantee; strategy, after all, isthe name of the game. Eternal vigilance is your best hope for survival . . . in checkers or chess.2. Black Magic—The best trick of all is concealing your tricks.3. The Confidence Game—It’s when you are most confident that you walk,wide-eyed, into the hidden trap. It happens to patzers and world champions: it goes with the territory.4. Close to the Vest—Don’t telegraph your punches. Old-timers had a saying: “Play your moves close to the vest.” It’s a good maxim to follow evenif you don’t wear a vest.5. The Switcher—You play hard against strong lines of play, but you maybe off guard when you are up against a weak opening. Before you knowit, your wily opponent has a winning game.6. Action or Inaction—Some positions call for an aggressive attack or aspectacular sacrifice, while others call for a quiet waiting move or aninnocent-appearing move that is really a “Lorelei,” tempting your opponent to go astray.7. Confusing the Issue—Beware of the opponent who intently studies theleft side of the board, then quietly moves a key piece on the right side.You have to look at the whole board to get the whole picture.8. The Unexpected—Unless you are prepared to expect the unexpected, beprepared to expect unexpected defeat.
100 Practical Speculation9. Houdini—Successful chess and checkers players have to be master magicians. They must escape unscathed from hopeless positions.10. Hidden Trap—Sometimes you see a brilliant move, but fail to note afatal flaw at the very end. Try to see your combinations in their entirety.
Deception is as constant in the market as it is among the great masters ofboard games. In response to a fellow trader’s query on the value of bid-askedand trade size data, James Lackey described in a 2002 post to the Spec Listsome deceptions that take place on a typical day:What does it mean when Mr. Big touches his left ear after lighting a cigar and betshis usual line in poker? What does it mean when Goldman goes high bid onNvidia and pushes the stock up by repeating his high bid up a dollar right beforelunchtime? What does it mean when the specialist for 3M spreads out the stock adollar after a decline of 50 cents then prints 50,000 shares?Each stock has a personality. The personality is from the traders and themarket makers trading the stock. The key to intraday moves is to find the Ax. TheAx is the market maker or makers who have the orders on a big day. The bigpushes of a dollar or more, when it is obvious who the buyer is, usually indicatethe end of the order. The best is Fidelity; they blast stocks. The worst is Janus;they drip orders through many different firms.One must realize the different motivations of traders, specialists and now theECNs [Electronic Communications Networks]. A great example is Goldman Sachs.Not only are they GSCO on your Level 2 machine, they can be SILK, which is SpearLeeds, which they own. Also they can be Spear’s ECN, REDI or be any other ECN,INCA, Instinet, or they take or hit ISLD to fake out day traders. We have a machinethat tells us who bought or sold on ISLD. So if I offer 100 shares at 50 and Goldman takes the stock, I know. Which is probably somewhere close to the end of theorder. He has shown his cards, especially if he is high bid for a time.They key to using time and sales and bid ask size is to know the players in thestock. Much deception is used when printing those so-called blocks of stock. Alsobid ask size and spread is used to deceive traders into thinking stocks are eitherstrong or weak. It is much more difficult to judge NYSE because the market makers can’t be seen. The market makers actually stand in front of the specialist onthe floor. Therefore, you must judge the specialist’s moves. Usually if he is notplaying his usual games, he has big orders and no time to play. That is where youwant to be in, with a good hand, with a big pot.
Despite all the evidence that results relating to technical analysisare consistent with randomness or the efficient markets hypothesis,the field’s multifarious techniques continue to exert a certain fascination even on highly educated people. We found ourselves with a frontrow view of this phenomenon when Lamberg, the aforementioned
Chapter 3 • The Hydra Heads of Technical Analysis
101
Monty Python fan, wrote a spoof of Martin Pring’s Know Sure Thing (KST)indicator, to use in one of our columns debunking technical analysis:I have spent over 10 years developing a technical indicator that allows me to predict the future movement of stocks with uncanny accuracy. My indicator, knownas the Guaranteed Known Thing (GKT), is based on number sequences that occurthroughout nature. It has made me a fortune. The GKT is based on the work oftwo famous mathematicians: Johann Heinrich Lambert (1728–1777) andLeonardo Pisano Fibonacci (1170–1259).Lambert is renowned among physicists as the founder of the theory of lightmeasurement, and his Cosmological Letters are famous among astronomers. Lambert attempted to explain the structure of the universe in these writings. In thecourse of his work, he became aware of a color-triangle developed by TobiasMayer in Gottingen in 1758 to systematically construct many of the possible colors. Building on Mayer’s work, Lambert created a triangle-based pyramid. King’syellow, cinnabar, and azurite occupy the three corners, and each side combinesthe two corner colors to form seven hues. On the inside, all three basic colors contribute to the color of each respective surface. The 45 hues of the lowest trianglegive way to increasingly higher and brighter triangles of 28, 15, 10, 6, and 3 hues.The pyramid’s tip is white, for a total of 108 hues.What does this have to do with making my fortune? I check the entire universe of stocks for action around the 45- and 108-day moving averages, then lookfor golden-hued crosses at a sequence of 28-, 15-, 10-, 6-, and 3-day moving averages. The stocks that survive this incredibly powerful screen are then checked forFibonacci Fan and Arc intersections.So powerful is this analysis that I caught the start, top, and bottom of the entire Internet move. But I am not greedy and have decided to divulge the stockspicked by the GKT indicator on my new hotline, the King’s Ransom. You can bemy first subscriber.
Lamberg’s mention of real mathematicians lent a certain believability tothe fabrication.In fact, the GKT indicator sounded so good that one of our editors, one ofthe sharpest minds in financial journalism, assumed it was real. When we innocently referred after the column’s publication to the brilliance of Lamberg’sfabrication, we were within a cat’s whisker of being fired once again.
Propaganda Aspects of Technical AnalysisMomentum indicators, straight-line extrapolations, reliance on subjective interpretation by the specially gifted—where have we seen this kind of reliance on
102 Practical Speculationauthority and glittering generality before? In the techniques of propaganda. InChapter 2, we examined propaganda and advertising techniques inan attempt to explain the persistence of popular misconceptionsabout the relation of earnings and stock market returns. These sametechniques may be discerned in the successful persuasion of thepublic to buy technical analysis software, books, and seminars. Each of theseven basic propaganda techniques enumerated in the Institute for PropagandaAnalysis’ classic text, The Fine Art of Propaganda, has an application in the fieldof technical analysis:Name calling: Those who do not subscribe to technical analysis are denigrated and ridiculed. Vic found himself the subject of this in 2001after he gave an interview to the magazine Technical Analysis of Stocksand Commodities.22 The TurtleTrader, a leading trend-following technical analysis Web site, ran a post emphasizing Vic’s massive tradinglosses in 1997 (trading short-term strategies against the trend).“Here’s a guy who blew up his own trading account in a spectacularfashion, and he’s knocking systematic trend-following?”Testimonial: The TurtleTrader also remarked: “To accept any of whatNiederhoffer says is to ignore the existence of Bill Dunn, Jerry Parker,Richard Dennis, John W. Henry, and all of the many Turtles.” (Itmight be fair to note here that Richard Dennis, founder of the Turtles,has authored his own share of losses and has closed funds amid massive drawdowns and liquidations.)Glittering generality: The need for technical analysis is presented in a formulation so general that it cannot be pinned down. The pioneeringtechnical analyst Charles Dow, originator of the Dow Theoryand the Dow Jones Industrial Average, gave a beautiful example of this technique: “The market reduces to a bloodlessverdict all knowledge bearing on finance, both domestic andforeign. . . . Price movements, therefore, represent everything everybody knows, hopes, believes and anticipates. Hence, there is no needto supplement the price movements.” With untestable statementslike that, it would be very hard for a man from Mars to distinguishthe level of knowledge in the field of technical analysis as we beginthe twenty-first century from that existing at the beginning of thetwentieth.It is hardly surprising that Dow’s quote is featured on the homepage of the main selling document of perhaps the most respectedtechnical analyst in the world. This analyst’s system of reading
Chapter 3 • The Hydra Heads of Technical Analysis
103
money flows was featured exclusively on the financial informationservice where Laurel was an editor. Her bosses mandated daily coverage of its readings. In 1999, however, at Vic’s suggestion, Laurelasked her reporters to obtain the technician’s actual results. A moment of truth occurred when an office researcher at the firm calledback after a few days and said there were no data to support the validity or predictability of the technique espoused. The researcherpointed out that the analyst had bought winning stocks over the previous several years of the bull market, and said that the record spokefor itself.Transfer: In the nonfinancial world, individuals and groups often use religious or patriotic symbols, such as the cross or the flag, to cloakthemselves with an air of virtue. Technical analysts have put this togood use. The very name “technical analysis” carries an aura of science. Perhaps because interpretation is so subjective, the field alsocarries a whiff of magic; one of the most well-known books on technical analysis is called Market Wizards. All financial Web sites, magazines, and television programs like to have a technical analyst in theirstable of pundits to achieve “balance,” thereby conferring an air ofauthority to the analysts. Many technical analysts invoke the namesof George Soros and Warren Buffett, contending that the success ofthese legends is the result of a trend-following strategy related totechnical analysis rather than the fruit of leveraged tax-sheltered buyand-hold investments in a wide range of growing American businesses during a bull market.One of the best uses of transfer we have seen appears in Trading Chaos: Applying Expert Techniques to Maximize Your Profits.23 Author Bill Williams references Einstein when discussing hisMarket Facilitation Index: “Comparing this to Einstein’s formulaE = mc2, we can solve for the constant c2 by transposing the m(mass) c2 = E/m = Range / Volume.”Card stacking: In technical analysis, examples to prove a point are chosenretrospectively and selectively. The market is rich enough to provideexamples to both prove and disprove the validity of any chart pattern.Bandwagon: One of the more prominent Web sites selling instruction intechnical analysis (“Just $999”) lists traders who supposedly usemethods similar to the ones of the course.Plain folks: “Hey, I’m just a regular Jane or Joe, but I got rich by learninghow to connect the dots and draw a trend line. You, too, can make bigmoney in the market.”
104 Practical SpeculationSome of the earmarks of pseudoscience apply here as well.Robert L. Park, a physics professor at the University of Maryland,compiled this list in a book called Voodoo Science: From Foolishnessto Fraud:1. A discovery is pitched directly to the media.2. A powerful “establishment” is said to be suppressing the discovery.3. An effect is always at the very limit of detection.4. Evidence for a discovery is anecdotal.5. A belief is said to be credible because it has endured for centuries.6. An important discovery is made in isolation.7. New laws of nature are proposed to explain an incredible observation.24Investors who are susceptible to the lure of propaganda and pseudoscience may be disinclined to ask for scientific proof. Indeed, whenever wehave tried in our columns to provide a fair test of whether trend followingworks, we have been greeted with vitriol. That is guaranteed to happen whenmembers of a cult are exposed to views that threaten their belief system. Weoften publish examples of this hate mail in our column, to indicate the resistance toward questioning the roots of the beliefs. A couple of samples:I think it is horrible you are telling people to not use a system that could helpthem save or make money just because you do not know how to use it (and probably are too lazy to take the time to really learn how to use it).I’m so glad there are shortsighted, uneducated people like yourselves that writesuch nonsense. Keep up the bad work . . . it just makes it easier for me to makemoney from all of the “fundamentalists” who will never make a dime in the market. No reply required.That’s why you went broke. You belong in jail.
At least we are with distinguished company in being vilified for our viewson momentum. Amos Tversky, the father of research in cognitive biases, collaborated on many studies with Gilovich, the Cornell professor who concluded that hot streaks in basketball are a myth. Tversky said that he lost morefriends from his studies than he could count. At least Tversky’s collaborator,Kahneman, was compensated for losing all these friends. He won the NobelPrize for economics in 2002 for his demonstration that these streaks aremere random variations.We are consoled every now and then when we get a positive letter:
Chapter 3 • The Hydra Heads of Technical Analysis
105
I’ve been following your contrarian methods and recently formed a hedge fund toimplement them. Suffice it to say my results and the anti-trend-following systemsthat you led me to are making me, my family, and my investors very happy.
We are not alone in concluding that the virtue ascribed to technical analysis is a chimera. Those who have studied the subject with a reasonable degreeof objectivity are fairly unanimous in concluding that many of the conventional techniques of technical prediction are not of great merit. Here is whatZvi Bodie has to say in the classic textbook, Essentials of Investments: “It shouldbe abundantly clear from our presentations that most of technical analysis isbased on ideas totally at odds with the efficient market hypothesis.”25 Whilemarkets are not completely efficient, they’re pretty close, so any method thatpurports to find inefficiencies had better be good.
Why Does the Myth Persist?Beyond the psychological biases and propaganda, the persistence of belief intechnical analysis techniques is unsurprising, given the size of the industrythat has sprung up around it. If the premises of technical analysis were subjected to testing, what would be the prognosis for all the seminars, courses,trade fairs, software, analysts, hardware, societies, news programs, supportservices, and staff that provide trend-following systems, not to mention thoseinvolved in marketing and evaluating the systems? Technical analysis practitioners are not anxious for a new paradigm that threatens their livelihood,even if their own paradigm does not jibe with the facts.We are reminded of the centuries-long success of the Delphic oracle. Thepriesthood no doubt benefited to no small degree from a vast network of spieswho gathered intelligence on fleet building, military preparations, and the potential for new colonies. But the most important reason for Delphi’s long success was surely that the predictions were just ambiguous enough to keeppeople coming back for more.
A Technical Approach That Can Be TestedThe question arises: Don’t you do anything but knock things down? Is therean indicator that you do have hope for? If there is some predictive value to achart, then the numbers that create the charts will contain that information.Science has always proceeded by trying to quantify rather than by relying on
106 Practical Speculationvisual impressions and anecdotes. We do believe that pricescontain predictive significance. But we prefer to work withthe highs, lows, opens,