|
Price Is Not
Random
Those in opposition to technical analysis suggest that price is the end result
of all that is known about the underlying security at any given point in time
and since this body of knowledge is constantly evolving it is impossible to
predict price with any degree of success. They would have us believe that
price is random.
If one looks at a price chart objectively it is
hard to make this flawed argument. Price is not random, it consists of periods of consolidation
when supply and demand for the security is in relative equilibrium and periods
of rapid price movement (trends), when there is an imbalance between supply and
demand.
Consider the case of Visx Inc. (VISX) in early
1999.
fig. 1a
In early 1999 Visx Inc. (EYE) became a very
hot stock. The maker of laser systems used for corrective eye surgery was
thought to have unlimited potential. In middle January through late
February 1999 the stock began a consolidation phase just below $35 before
posting a breakout to $40 at the beginning of March on five times average daily
volume. That event sent the stock into a trending phase that lasted
through early April. During this phase the stock rallied better than
75-percent as investors began to embrace the idea that laser eye surgery was
going to be a multi-billion dollar industry. The next consolidation phase
began with the April highs and lasted through early June. During this
period the stock remained in a relatively tight trading range and volume slowed
considerably. In the absence of further fundamental news both supply and
demand for shares was in relative equilibrium. In early June Visx Inc. reported
record earnings and revenue growth and once again the stock surged to a new
high, this time pushing through $70 on almost ten times average daily
volume. The new trending phase saw the stock appreciate a further
fifty-percent to $105 in less than two months.
During each of these four phases the share
price of Visx Inc moved in distinct, if not predictable patterns.
Your stock's price
is sinking fast and you don't know why? Technical analysts
believe that price anticipates important fundamental changes and
we have just the example to prove that thesis correct.
why
technical analysis 
price
anticipates fundamental changes
|
Home > Education > Technical Analysis > Chart Patterns >
Basics > Price
Is Not Random 
