It is worth saying that neither I involve in technical analysis of efficient market hypothesis nor I have ever been engaged in option technical analysis. What I believe is that it is of no use to engage in it.
I do not say that there is no productive value of technical analysis, instead I suspect of its productive value. There are many flaws in efficient market hypothesis. It is based upon unwritten basis that data is the key factor determining market prices.
Graham stated the following in “Security Analysis”:
“the influence of what we call analytical factors over the market price is both partial and indirect? partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and indirect, because it acts through the intermediary of people”s sentiments and decisions. In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion?”
There are many people who cite the quote without looking into what is being said. Graham is said to have a broader mind, like Buffett. His broader mind is both a curse and a blessing for him. In security analysis, at several points, graham explored instead of helping, some interesting topics in depth, which was not required. Apart from interruption from many, Graham could have said that stock prices get a smack in shorter runs and they are controlled by intrinsic factors of business in longer runs. But he did not said that. He described and presented the stock market to be of great interest to investors and economists.
Data have an indirect effect on prices. Market is like a mirror full of fun. Original data is reflected in parts, but the reflection is not an accurate representation of original data. A step ahead of this metaphor, the Efficient Market Hypothesis has its basis in the idea that mirror create the reflection only after the image action on it. It pay no attention to the truth that a same process can be interpreted in different ways. One can say that it might be the mirror that has an action over image while creating reflection. This is the way we interpret the process.
We don’t like to use inappropriate metaphors while talking about the market. Price fall is said to be wealth destroying. But, no one says that he lost his wealth with reduction in the price of product. People generally talk about market not as a collection of trades but a sort of object in the options technical analysis of efficient market hypothesis.
Related posts:
