The true importance of interpretation is not recognized in Efficient Market Hypothesis. We omit the main step, if we say that publicly available information called data acts on market prices. No doubt, every blackjack player is provided with the same data.
Arguments against optional technical analysis are not only supported by Efficient Market Hypothesis, but there is also empirical evidence too. Carl Menger in an introduction to economic wrote:-
“All things are subject to the law of cause and effect. This great principle knows no exception, and we would search in vain in the realm of experience for an example to the contrary. Human progress has no tendency to cast it in doubt, but rather the effect of confirming it and of always further widening knowledge of the scope of its validity.”
There is nothing at random as all things are subject to the law of cause and effect. The caused event must have been there because of some pattern that must not be discernible. If some one says that there is an uncaused event, who would put himself into argument that stock prices are uncaused? Stock prices are caused by buying and selling and the result of human actions done for some purpose. Science has already studied the cause of human actions, so it is of no use to say that it is uncaused. Each of us on our experiences can say that every of our action has some purpose behind it. Similarly, the movement of market individuals is based on price movement.
If the price movements are the result of investors’ action, then past price movement will be responsible for future price movement. Optional technical analysis is valid with some logics behind it. It can be argued on the basis of some argument that technical analysis has some predictive power.
So, why is not better to use optional technical analysis? I think that functional analysis is much powerful than spending time on technical analysis. The investor can be kept occupied with by sufficient number of fundamental analysis, so no time shall be devoted to technical analysis. There are many evidences to support that fundamental analysis is more powerful tool as compared with technical analysis.
There are some forms of option technical analysis that have predictive power, but I do not practically pretend it to. It is because I believe it to be the most useful model. I pretend that technical analysis does not work, though I know that some of its form must work.
It is really strange. In science I pretend that there are random events, though I know that there must not be random events. Similarly, in math’s, I pretend that zero is a number, but it might not be. Hence, the model with random events is useful. In many circumstances, refusing a random event might result in some harm. Such models with random event are not only simpler but workable. It is the same situation with zero. It is not a number according to the principles of arithmetic. But it was taught that zero is a number and we accepted because it was a simple workable model.
The same is the case with technical analysis. The logical validity of optional technical analysis is must. And have a concept that there is no utility of investing in technical analysis.
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