Technical Indicators

Technical analysis involves trying to predict price movements based on earlier price patterns, calculated support/resistance levels, moving averages, retracements, and other indicators. Technical analysis may have implications for hedgers even though their market entry/exit isn’t as frequent as professional traders. I do not believe that technical indicators are innately or inherently valid predictors of price behavior. But I can think of two arguments for paying attention to technical indicators. First, some suggest that technicals are a leading indicator of new, unfolding fundamental conditions. While that is possible, it is unfortunately not a very testable hypothesis. The second argument for paying attention to technicals is that to the extent that large institutional fund managers act on technical indicators (even in simply placing their buy/sell stops), then those indicators could possibly influence prices in the near term, i.e., in the manner of a self-fulfilling prophecy. A

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