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Investors Make Bottoms; Traders Make Tops

Phil Roth, CMT recently made public his Masters Thesis, “Investors Make Bottoms; Traders Make Tops.”  Below, you can find an abstract from the paper:

Preface

My intention is not to defend or deny the theories of “Behavioral Finance”.  It has long seemed a matter of certainty to technicians that the notion of “Random Walk” has been refuted and that fundamental analysis is inadequate; hence, to us it was a matter of time before academia would be searching for new explanations of stock price movements.  Chan, Jegadeeish, and Lakonishok wrote in 1999: “What has caught the attention of many investors recently is the predictability of price changes over intermediate horizons (three months to a year).  In the medium term, stock prices exhibit momentum (continuation in a price direction).  So, for these horizons, what goes up tends to keep rising and vice versa.”1  Some equity market participants believe that stocks trend because information comes to the market place incrementally or that investors only act on the information incrementally.  However, technicians are primarily concerned with the observation that stocks do trend.  Prechter and Parker wrote: “In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated financial fluctuations. This dynamic produces non-mean-reverting dynamism in financial markets, not equilibrium.”2  It is my intention to show that many technical indicators are, indeed, behavioral.

To read the entire thesis, please follow this link.

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Nov. 28th, 2016

The 2016 Market Technicians Association Educational Foundation annual fundraiser was held on October 26th at The Yale Club of New York City. This yearly event is an important source of funding that contributes to the foundation’s ongoing efforts to establish, … Continue reading

Aug. 14th, 2015

Phil Roth, CMT recently made public his Masters Thesis, “Investors Make Bottoms; Traders Make Tops.”  Below, you can find an abstract from the paper: Preface My intention is not to defend or deny the theories of “Behavioral Finance”.  It has long … Continue reading