| Annual | 2007/08 |
| Foreign Debt | $45.00bn |
| Per Capita Income | $1085 |
| GDP Growth | 5.8% |
| Average CPI | 12.00% |
| Monthly | February |
| Trade Balance | $-1.17 bn |
| Exports | $1.26 bn |
| Imports | $2.12 bn |
| Weekly | Mar 27, 09 |
| Reserves |
It was a late break for the euro this past Friday; and a meaning full one at that. Against its US counterpart, the European currency finished more than a week of congestion near multi-month highs with a plunge that called into question the underlying health of the euro. This uncertainty is warranted considering the development in fundamentals behind the scenes over the past weeks and months.
Euro May Fold Under ECB Cuts And A Building Recession
Fundamental Outlook for Euro This Week: Bearish
- German business confidence drops to a 26 year low – support for a recovery waning
- European manufacturing and service sector activity rebounds slightly…but from record lows
- Euro’s late-week decline suggests dominant downtrend may have been revived.
t was a late break for the euro this past Friday; and a meaning full one at that. Against its US counterpart, the European currency finished more than a week of congestion near multi-month highs with a plunge that called into question the underlying health of the euro. This uncertainty is warranted considering the development in fundamentals behind the scenes over the past weeks and months. Whereas the euro was once treated like a currency that could weather the worst of the economic storm, retain its relatively high yield and show the solidarity of its union structure; we now see that the Euro Zone is in just as bad a shape as its global counterparts. There is a wide range of data, rate decision and the G20 meeting all penciled in this week; and there is little room for the euro to find significant benefit from any of these events.
A global affair, the market will likely forgo its immediate concern for any other market drivers until the Group of 20 summit is concluded and the full extent of their plans are announced on Thursday. Ultimately, the aim is that all economies would benefit from a global effort to turn the world-wide recession around and stabilize the financial crisis; but some will benefit more than others. So far, European leaders have committed less to their regional economy than the US, UK or China. This has been a point of contention for the IMF, US President Barack Obama and UK Prime Minister Gordon Brown who have all called on the Euro Zone to commit more of their budget to financial stimulus; and all have been rebuffed. Everything else being equal, if the global economy started to turn around today, the Europe would be in a great position with relatively less money tied up in deficits and less of their financial system in the hands of the government. However, if leaders do cave to these pressures, then the potential for a quick rebound will be lost.
Another euro advantage that has been slowly deflated is the steady decline in the benchmark lending rate. Before the European Central Bank began to hit its stride with aggressive rate cuts, President Trichet’s promise to target inflation led many to believe that the euro would maintain a positive yield spread over its US and UK counterparts through the life of the current recession. This was another potential catalyzing benefit of the economy that could leverage a rebound in the euro should risk appetite recover. However, the main rate has since tumbled. Currently at 1.50 percent, the policy group is expected to cut another 50 basis points off their target – bringing them within the pull of the near-zero level that has captured so many others. Trichet and some other policy members seem acutely aware that there is no real benefit to cutting rates beyond a certainly level; but the group seems to have already sounded the warning.
Meantime, one of our most successful stakes last year remains in fine fettle this year, despite several reasons that ought to have upended it. Which stake am I talking about? The PowerShares Dollar Bull (nyse: UUP) has been (and remains) our play on a weakening global economy and a ratcheting up of fear on a global scale. Our other smart move last year was the iShares Gold Trust (amex: IAU).
In fact, I like it enough to add it toETF Advisor'sGlobal Growth and Long/Short portfolios. I also think that Europe's economy remains in the cross hairs of our weakening one, making shorting Europe one possible move on the board. However, since I think we're going to get a dead cat bounce in here, I'd be wary of overstepping our current short-selling bounds in the international and emerging equity markets. But I will hedge that wariness by taking an ultra-short position in the euro in our Long/Short portfolio.
With a current position in a currency ETF, and with two more being added to our portfolios' mix, I thought now would be a great time to provide snapshots for each of the currency ETFs we track. It's also a good time to discuss the risks and rewards of investing in currency markets, as well as one strategy that has been a mainstay of hedge funds for decades, which is, I want to emphasize, not the same thing as saying it's has been a profitable strategy.
First, currency trading is both as basic and as potentially volatile as investing gets. Basic, in that high-interest rate currencies have a tendency to strengthen relative to low-interest rate currencies, and vice versa. Volatile, in that that basic metric can change overnight, intra-day, on a whim, without warning.
For the first half of last year, we made hay using a basket approach to currencies rather than betting on a single one. The PowerShares Currency Harvest (nyse: DBV) let us not only buffer the blows of the stock market well but also helped us keep pace with the rapidly changing and economic landscapes here and abroad. As that landscape went from bad to worse, we sought the safe haven of the almighty dollar. It workedAll major commodity markets as well as forex and money markets are closed today on account of "Gudi Padwa".
However, the Bombay Stock Exchange and the National Stock Exchange will remain open as usual for trading.
Mumbai, March 27 The typical year-end phenomenon of robust credit offtake is once again on full display with banks lending Rs 22,423 crore in the fortnight ended March 13, 2009.
According to the Reserve Bank of India’s statistics, in the last three fortnights alone, banks cumulatively have lent Rs 54,175 crore.
According to bankers, most of the credit recently disbursed by them is short-term in nature. Realising that banks are flush with liquidity, corporates are pressing them to give short-term credit at 8-8.5 per cent. And banks are obliging as they hardly have avenues that will fetch better returns.
In the financial year so far, banks have cumulatively lent Rs 3,28,600 crore as against Rs 3,46,450 crore in the corresponding period last year i.e. banks had lent Rs.17,850 crore more last year.
Pointing out that bank credit is slowing, Dr. Duvvuri Subbarao, RBI Governor, said, “Recent data indicate that the demand for bank credit is slackening despite comfortable liquidity in the system. Dampened demand has dented corporate margins while the uncertainty surrounding the crisis has affected business confidence.”
“The index of industrial production has shown negative growth for two recent months and investment demand is decelerating. All these factors suggest that growth will moderate more than we had earlier thought,” the Governor said at the Confederation of Indian Industry’s National Conference and Annual Session 2009 in New Delhi on Thursday.
In the reporting fortnight ended March 13, 2009, aggregate deposits with the banking system declined by Rs 3,363 crore. In the preceding two fortnights, however, there was a robust accretion of Rs 67,063 crore to the deposits of the banking system.
Thanks to the high interest rates offered by banks till December 2009, in the financial year so far, aggregate deposits surged by Rs 5,35,562 crore as against Rs 4,68,128 crore in the corresponding period last year.
Forex reserves jumpMeanwhile, the foreign exchange reserves soared by $5.102 billion in the week ended March 20, 2009. As on this date, the country’s forex reserves stood at $253.826 billion.
In the reporting week, the reserves rose primarily on account of the foreign currency assets (FCA) going up by $5.081 billion. FCA expressed in US dollar terms includes the effect of appreciation/depreciation of non-US currencies (such as euro, sterling, yen) held in the reserves. India’s reserve position with the International Monetary Fund went up by $21 million. Since end-March 2008, India’s forex reserves have shrunk by $55.897 billion.
The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years.
Fundamental Outlook for US Dollar: Bearish
- UN panel and Russia prepared to recommend abandoning the dollar as the world’s reserve currency
- Fed holds rates, announces quantitative easing and a sizable increase to MBS purchases
- Industrial production runs its worst slump since 1975 suggesting the worst of the recession has yet to be seen
The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years. And, though the retracement of the past two weeks has unwound a significant share of the previous eight months’ of bullish trending; the pull back may not stop there. As fear settles and global policy officials attempt to stabilize the financial and economic crises, the market will grow increasingly critical of the stalwart dollar. With a clear field of view, traders will take weight of the
Of these three critical themes, the threat to the dollar’s standing as the world’s primary store of wealth is the most elemental. One of the primary reasons (aside from being backed by the largest economy in the world) the greenback has dominated as the world’s most liquid and actively traded currency is the fact that nearly ever central bank and financial player transacts through it. With this standardization, the dollar lines reserves, is used to purchase commodities and is used as a benchmark for currency pegs among other things. This is why suggestions that the Commission of Experts on International Financial Reform panel will recommend to the UN that the dollar be abandoned as the world’s currency reserve carry’s so incendiary. This is not the first time an official or group has called for such a move; but the argument has not been made under the level of stress the markets are currently experience. With so many ‘too-big-to-fail’ market structures and participants having succumbed to this crisis, there is little reason why such an out-dated norm will not be reconsidered. In fact, the argument for a basket of currencies taking the place of sole dollar is so persuasive that the topic will also come up at the G-20 summit on April 2nd – where anything official will likely take place.
In the meantime, fundamental traders will focus their attentions on the greenback’s fading appeal as a key safe haven currency. It was the height of the panic back in October that really cemented the currency’s place as a harbor for the world’s money. Fear left investors with one concern; and that was capital preservation. Offering the deepest pool of liquidity and the backing of the world’s largest government, US Treasuries (and by proxy, the dollar) was bought at a furious pace. However, in the months that have past, the market has cooled off. Traders and money managers are still worried about protecting their funds; but they are doing so with a mind for potential return and the long-term viability of their investments. Over the past weeks, the
Generally speaking, any two currency pairs can be traded back and forth. Even if common information is not kept about two specific currency pairs with respect to each other, that currency information can be obtained by comparing both of those currencies to the American dollar. The world economy still largely operates based on the US dollar, and for that reason, you can use that dollar as a middle man to trade any two currencies the world has to offer. That said, however, there are some currency pairs that are more commonly traded than their counterparts and these pairs are the focus of the discussion below.
American Dollar and European Dollar: This particular currency pair is also known as the EUR/USD or the USD/EUR depending on the particular point of view to trading that you bring to the table. It is also arguably the most traded currency in the world when the major conventional traders are removed from the picture which essentially means that most of the individual traders that enter the Forex market through online channels eventually settle on trading these two currencies back and forth. Over the long run, there has been a steady gain of the EUR on the USD and over the short run there is enough volatility in the market to allow you to make multiple trades on trends a day if that is what you want to do.
American Dollar and British Pound: This particular currency pair is also known as the USD/GBP or the GBP/USD currency pair. This used to be the most common currency pair traded in the world and might still be the most common one traded if you put the conventional large traders back into the picture. There tends to be far less short term volatility in this market which is perhaps why individual traders prefer the EUR/USD to this one.
American Dollar and Canadian Dollar: This one is also known as the USD/CAD or the CAD/USD. While not a particularly common trade made on a worldwide scale you will see this trade quite often in the North American market. Even outside conscious Forex trading there are hundreds of exchanges between these two currencies everyday because of the close relationship the two parent countries have.
European Dollar and British Pound: Also known as the EUR/GBP or GBP/EUR. This is a very popular trade in Europe and particularly in the United Kingdom but on a worldwide basis it is generally a better bet to go with the EUR/USD currency pair because of the greater volatility that market brings to the table.
Chinese Yuan and Japanese Yen: This is the CHY/JPY or the JPY/CHY currency pair. This trade is very popular in Asia and like the CAD/USD trade also occurs quite often outside of conscious currency trading with the number of people that travel back and forth between areas that have these two pairs.
These are by no means the only currency pairs available for you to trade as stipulated in the introduction, but they are definitely some of the more popular ones. Every reputable and decent quality online Forex software will automatically have at least these five currency pairs programmed into them and a good number of the software packages you can find on the internet will have many more as well as custom options that you can use to track your own currency pairs
You have the desire to succeed. If you have the desire to succeed and are serious about winning at forex trading you can. It’s a fact that anyone can learn currency trading if they want to and to inspire you, I am going to give you an example.
It has long been argued whether traders were made or born to be - so is it an innate gift or is a skill anyone can learn?
Well consider this:
A baby does come out the womb saying buy “euro sell yen” he has a long way to go in life, he has to learn to walk talk and many choices to make and has it all to learn.
The world is truly his oyster.
Some argue that intelligence is genetic - but you don’t need more than a basic education to trade and one person set out to prove this, in his famous turtle experiment. The trader was a legend by the name of Richard Dennis.
He gathered a group of people with no knowledge of trading of all ages, different sexes and varying levels of educational ability together and taught them to trade in just 14 days - the result? They made him in excess of $100 million dollars in just 4 years and went into trading history.
So Dennis proved that anyone could learn to trade, with the right forex education and a simple robust forex trading system but there is a paradox:
If anyone can learn to trade, why do 95% of speculators burn their money and lose? The answer is they simply get the wrong education. The core of the turtle experiment was to teach an inner understanding of strengths and weaknesses of the pupils - it’s not the market who beats the trader - the trader beats himself.
Dennis based his teaching on 3 core points
1. A simple trading system that the traders could understand and have confidence in. He taught them the trading basics they then had to make them work, his tuition stopped after 14 days.
2. He taught them that if they wanted to win long term, they would have to keep executing their trading signals through long periods of losses and this is why understanding of the system and themselves was so important to achieve long term currency trading success.
3. Finally, he taught them to play great defense and take lots of small losses and run their few profits. They had far more losers than winners but still came out on top.
Most traders don’t ever get an understanding of what they do and they never acquire confidence and discipline, because they blindly follow someone else. Most traders also let their losses get out of control. You can perhaps see from the above that the trader who under estimates the mental side of trading (the turtle method was very simple) are destined to lose.
The conclusion is:
If you have desire, chances are you will learn and digest the above realize success is within your grasp. If you learn the right knowledge and unlock the key to mental discipline at the same time, you have the combination of method and mindset to pursue your goal.
Can you become a successful forex trader? The answer is yes.
You may not become as rich as the turtles did - but there is nothing stopping you from making serious money in the world’s most exciting business of global forex trading
Forex is one of the greatest hommy work opportunity to make money. It gives an opportunity to make money from the comfort of your home and spending the time with family at the same time. It is also an opportunity which you can do along with your existing day job.
Forex means foreign exchange and Forex trading means is the trading between foreign exchanges.
Forex trading requires some knowledge about the way the Forex market runs. You have to learn about he factors both local and the global which affects the market. If you want to succeed in this particular trading you must have the knowledge about the basics and facts.
Global Forex Trading offers the chance to deal in real time online currency trading that makes millions of forex brokers become more rich every day.
Global Forex Trading has less publicity that stock and commodities market and even the futures, even more than $2 trillion of currencies are transacted every day on the global forex market.
Compared to stocks and shares or commodity markets that have specific opening and ending trading times. At the same tim, Forex markets are available for trading anytime with price of currencies changes and fluctuates everytime.
Forex trading has become an extremely popular way to trade the global market, the largest and most liquid market in the world.
The Forex Trading market is open 24 hours a day. Forex trading also gives free commission and available on more than 60 currencies worldwide.
Global forex trading boasts that they provide the only forex trading platform that is suitable for both beginners and professionals.
Forex Trading has no restrictions of getting profits no matter what the market condition. Nowday, the Global Forex Trading is available not only for the large investors but the smaller one can take a part too.
Leverage is the main key and powerful tool to Forex Trading wealth. You should have a good education in Forex trading to reach gain and profits consistently.
In Forex trading, you can get a leverage of 20 to 50 times commonly up to 100% margin in some special cases. In stocks or shares, you may be able to get it of 50 – 70% of your stocks or shares.
Leverage is the main key and powerful tool to Forex Trading wealth. You should have a good education in Forex trading to reach gain and profits consistently.
With that leverage comparison, you may be able become a millionaire fastest in Forex trading.
All things you need to know and learn it up in Forex trading ; knowing risk level - how much you are willing to lose, understanding the different forex trading systems as technical and fundamental and research the trading systems which you can be familiar with how they work.
Also learning the trading trends, price history, support and resistance lines, familiar with the fundamental economic factors and its issues that effect to the Forex market.
Global forex trading is something not many people consider for investment – because of less information - but worldwide forex trading continues and become more and more popular recently.
Individuals all over the world are investing in the Forex market and gaining thousands of dollars every day.
Forex Trading is the biggest financial market. 24/7 … night and day… it does not really matter, trading happens. There are many opportunities for individuals and organizations to make profits. There are a number of day traders in the market, and if you’re thinking of trading in the forex market, why not join the day traders.
If you decide to trade in the day, do not expect to learn about it immediately. You will probably need to learn for a while, and you need a lot of effort. Practice makes perfect, and practice is demanded in forex trading.
Before you finally use real money, you can have simulated practice in making negotiation and do paper trade. Here, you can integrate all your negotiating skills and see if they really work.
Do not be a fear of losing a certain amount of money, because any trade involves a lot of it. But that does not mean you should not limit your losses, you can use the stop orders. Most of all, you should learn from your losses in the past.
A good trader by day should have self- discipline. Disciplining yoursef, if it becomes a habit, will lead to good decision making skill. It also guides you to act in according to the trading systems and strategies in the market. In this way, you will trade in a consistent and reliable manner. Some situations may require an individual to make decisions based on their pre-set criteria and parameters.
As a trader, make it always a point to follow your trading system / plan. By doing this, you can effectively assess the results of your plan. If your expectations are not met, perhaps its time to make a few adjustments, so that your system/plan can still be better used in the future.
Do not let emotions rule over you, especially when you’re making some trading decisions. A day trader must always be disciplined, and once you reach your goal of earning profit, leave the market first. Often, people plunge in deeper because they are influenced by greed and fear.
There are also day traders who are very reluctant to lose money. For example, your stock decreases, and you’re still hoping that after some time it will happen again. But then, the share price goes further. If only you are not reluctant to lose money, you could have made a sell the first time the price went down, and you could have avoided further losses.
A day trader should not let fear and greed to rule him, otherwise it will be your downfall.
If you are serious with day trading, you can also do it at home. You would need hardware and software to set up at home for your online tradingFor your hardware, you’ll need a computer with a Windows XP operating system or similar to it. A nineteen-inch monitor will be okay.
A fast Internet connection is a must, because day traders make fast executions and confirmations of the forex transaction. They are also need to receive and provide quotes, news and other market data. A fast Internet connection is imperative so you can make your trading day in a timely manner.
Services to execute transactions are available online. There are two types: the Internet-based brokers and online systems or EDAT. The first type varies on how customer orders are executed, reviewed and confirmed. This causes delay in completion of a trade. On the other hand, the EDAT allows the operator to directly contact experts. The result is a faster execution and confirmation of the order.
Software platforms that are specially designed for day traders are often used by the most serious. In this software, real-time data are generally provided as stock ticker and price indices and averages, graphics, market stories, and price alerts. A monthly payment is required, though because this type of software usually charges some fees.
Becoming a day trader is easy, but only if you are quite serious. Like any type of trade, it requires dedication, time and effort. If you are able to put all these things together, then you will reap the benefits you’ve never imagined.
Global Forex Trading, a institution that was established in the year 1997 has become one of the greatest currency trading service providers within a short span of time. If you are ready to take the risks involved in the currency exchange market it will give you an opportunity to deal with real time online currency trading.
Literally this market is active and functions twenty four hours a day. You can involve in the currency exchange business at any time a day. It makes the global forex trading market unique when compared to other systems in the world.
It is the currency market that keeps the global commerce live. Forex is nothing but an attempt from the part of individuals and groups to make profit from the highly fluctuating exchange rates of the currencies between two countries. It works almost like a stock market where an investor purchase stocks of a company to sell them for high price when market becomes favourable to him. In currency market also a person invests in the currency of a foreign country with an expectation to sell the currency when the market fluctuates favourably.
Forex depends on a lot of factors including international business dealings. Currency pairing is the most common pattern of currency trading. The traders pair the currencies of different countries to make currency exchange easier.
Global currency trading has no holidays. The market is open twenty four hours a day and 365 days a year. This is because the government and bank employees are active round the clock in some country in some part of the world. The money market has to function for the smooth running of global commerce. As far as global currency exchange is concerned, it is said that a global currency trading day begins in Sydney and moves along through the entire world and come back to Sydney to start the next day.
The basic intention of forex is to promote international investment and commerce. As the political and economic scenario of various countries change from time to time and some times day by day, this field opens up immense opportunity to such persons who are able to foresee the political and economic changes that is to occur in various countries and invest accordingly. Peripherally though it may appear that global trading involves an element of gambling it is a field which requires immense and deep rooted knowledge in global economics and commerce.
Trading, whether it is stocks, commodities, or derivatives (like futures and options) can be a very lucrative business to be in.
With the decision to become a trader, you must also choose what type of market you will focus on and what instruments you will trade. Will it be shares of publicly traded companies, commodity future contracts like oil and gold, or currencies.
Most of the financial markets that exist in the world today are within the framework of a central exchange, and for that reason they are limited in their scope and daily trading volume. Every market except one, which is the foreign exchange currency market.
The foreign exchange (forex) market has no central exchange, and instead it exists only as a highly interconnected web of bank servers and individual brokers. The 'over the counter' type of trading tends to be much larger in scope than trading centered around a central exchange (such as the NYSE), and for the reason the forex market is hands down the largest financial market in the world with daily volume surpassing $2 Trillion USD.
The forex market is the only true global market that exists, as it is not based in one specific country and instead is created by the perpetual buying and selling of banks and financial institutions in every major city, 24 hours per day.
Unlike traditional exchange-based markets which have set times that they are open and closed, the forex market literally follows the span of daylight around the planet.
When you are a forex trader you need to be familiar with the term 'global trading day.' The global trading day begins with the London market open hours (about 3AM New York time) and continues across all the major cities and time zones.
There are three distinct times throughout the global trading day when there is the most trading activity (and consequently the most liquidity). These times are based around the open-hours of the three major cities in the world where the largest volume of forex activity takes place: London, New York, and Tokyo.
So what does this mean for you, the trader? Because the forex is a global market and there are no set open and closed times, it is possible to trade at any time during the day (except on weekends).
It also means that due to the level of daily trading volume, this market is very liquid and it is virtually impossible to get 'stuck' with an open position.
Because of these lucrative trading features, many firms and brokers have sprung up to cater to the large demand of forex market access. Many of these companies offer highly advanced trading platforms that feature very low commission trading and seamless market entry/exit.
All in all, forex trading is by far one of the coolest ways around to make money today, since all you really need is a broadband-enabled laptop and a funded trading account to make money from anywhere in the world.
Average true range - averaged daily trading range, adjusted for price gaps
Chart pattern
Coppock - Edwin Coppock developed the Coppock Indicator with one sole purpose: to identify the commencement of bull markets
Dead cat bounce - the phenomenon whereby a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement
Elliott wave principle and the golden ratio to calculate successive price movements and retracements
Hikkake Pattern - pattern for identifying reversals and continuations
Momentum - the rate of price change
Point and figure charts - charts based on price without time
OVERLAYS
Overlays are generally superimposed over the main price chart.
Resistance - an area that brings on increased selling
Support - an area that brings on increased buying
Breakout - when a price passes through and stays above an area of support or resistance
Trend line - a sloping line of support or resistance
Channel - a pair of parallel trend lines
Moving average - lags behind the price action but filters out short term movements
Bollinger bands - a range of price volatility
Pivot point - derived by calculating the numerical average of a particular currency's or stock's high, low and closing prices
PRICE-BASED INDICATORS
These indicators are generally shown below or above the main price chart.
Accumulation/distribution index—based on the close within the day's range
Average Directional Index — a widely used indicator of trend strength
Commodity Channel Index - identifies cyclical trends
MACD - moving average convergence/divergence
Parabolic SAR - Wilder's trailing stop based on prices tending to stay within a parabolic curve during a strong trend
Relative Strength Index (RSI) - oscillator showing price strength
Rahul Mohindar Oscillator - a trend identifying indicator
Stochastic oscillator, close position within recent trading range
Trix - an oscillator showing the slope of a triple-smoothed exponential moving average, developed in the 1980s by Jack Hutson.
VOLUME-BASED INDICATORS
Money Flow - the amount of stock traded on days the price went up
On-balance volume - the momentum of buying and selling stocks
PAC charts - two-dimensional method for charting volume by price level
EMPIRICAL EVIDENCE
Whether technical analysis actually works is a matter of controversy. Methods vary greatly, and different technical analysts can sometimes make contradictory predictions from the same data. Many investors claim that they experience positive returns, but academic appraisals often find that it has little predictive power. Modern studies may be more positive, however –- of 95 modern studies, 56 concluded that technical analysis had positive results, although data snooping and other problems make the analysis difficult. Nonlinear prediction using neural networks occasionally produces statistically significant prediction results. A Federal Reserve working paper regarding support and resistance levels in short-term foreign exchange rates "offers strong evidence that the levels help to predict intraday trend interruptions," although the "predictive power" of those levels was "found to vary across the exchange rates and firms examined."
Critics of technical analysis include well-known fundamental analysts. For example, Peter Lynch once commented, "Charts are great for predicting the past." Warren Buffett has said, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer" and "If past history was all there was to the game, the richest people would be librarians."
An influential 1992 study by Brock et al. which appeared to find support for technical trading rules was tested for data snooping and other problems in 1999; the sample covered by Brock et al was robust to data snooping.
Subsequently, a comprehensive study of the question by Amsterdam economist Gerwin Griffioen concludes that: "for the U.S., Japanese and most Western European stock market indices the recursive out-of-sample forecasting procedure does not show to be profitable, after implementing little transaction costs. Moreover, for sufficiently high transaction costs it is found, by estimating CAPMs, that technical trading shows no statistically significant risk-corrected out-of-sample forecasting power for almost all of the stock market indices." Transaction costs are particularly applicable to "momentum strategies"; a comprehensive 1996 review of the data and studies concluded that even small transaction costs would lead to an inability to capture any excess from such strategies.
MIT finance professor Andrew Lo argues that "several academic studies suggest that...technical analysis may well be an effective means for extracting useful information from market prices."
In 2008 Dr. Emanuele Canegrati, in his unpublished paper "A Non-random Walk Down Canary Wharf" conducted the largest econometric study ever made to demonstrate the validity of technical analysis for the first biggest companies listed on the FTSE. By analyzing more than 70 technical indicators, some of them almost unknown until then, the study demonstrated how market returns can be predicted, at least to a certain degree, by some technical indicators.
Efficient Market Hypothesis
The efficient market hypothesis (EMH) contradicts the basic tenets of technical analysis by stating that past prices cannot be used to profitably predict future prices. Thus it holds that technical analysis cannot be effective. Economist Eugene Fama published the seminal paper on the EMH in the Journal of Finance in 1970, and said "In short, the evidence in support of the efficient markets model is extensive, and (somewhat uniquely in economics) contradictory evidence is sparse." EMH advocates say that if prices quickly reflect all relevant information, no method (including technical analysis) can "beat the market." Developments which influence prices occur randomly and are unknowable in advance. The vast majority of academic papers find that technical trading rules, after consideration for trading costs, are not profitable.
Technicians say that EMH ignores the way markets work, in that many investors base their expectations on past earnings or track record, for example. Because future stock prices can be strongly influenced by investor expectations, technicians claim it only follows that past prices influence future prices. They also point to research in the field of behavioral finance, specifically that people are not the rational participants EMH makes them out to be. Technicians have long said that irrational human behavior influences stock prices, and that this behavior leads to predictable outcomes. Author David Aronson says that the theory of behavioral finance blends with the practice of technical analysis:
By considering the impact of emotions, cognitive errors, irrational preferences, and the dynamics of group behavior, behavioral finance offers succinct explanations of excess market volatility as well as the excess returns earned by stale information strategies.... cognitive errors may also explain the existence of market inefficiencies that spawn the systematic price movements that allow objective TA [technical analysis] methods to work.
EMH advocates reply that while individual market participants do not always act rationally (or have complete information), their aggregate decisions balance each other, resulting in a rational outcome (optimists who buy stock and bid the price higher are countered by pessimists who sell their stock, which keeps the price in equilibrium). Likewise, complete information is reflected in the price because all market participants bring their own individual, but incomplete, knowledge together in the market.
Random Walk Hypothesis
