When I first learnt of technical trading I puzzled over it for a long time. By own admission it ignored the rules of theory; yet the technical traders believe in it immensely, and profitably one supposes, and they consider the alternate to be useless. (In this at least, they are in agreement with the efficient markets hypothesis.)
I eventually came to the conclusion that in the absence of any good theory, then a theory of another sort must evolve. Some sort of shared understanding must evolve to permit a small interested community to communicate on a sort of insider basis. There is probably, I postulated, some economics or psychology law somewhere that says that a group of insiders is somewhat contiguous with a shared language, shared theory and eventually shared beliefs.
That sounds like a Schelling point. Is technical trading - flags, pennants, head&shoulders, etc - a Schelling point?
Footnote: wikipedia describes technical analysis which is close. In the above I'm more referring to what they describe as charting.
Posted by iang at October 11, 2005 09:04 AM | TrackBackA link to wikipedia for "schelling point" would be useful here.
Posted by: Rachel at October 11, 2005 10:23 AMDone! Last night, Schelling points on wikipedia were brief to the point of uninformative. Today, the description is much more useful.
I wonder if wikipedia is another Schelling point? Time for another cup of coffee...
Posted by: Iang at October 11, 2005 10:30 AMSome of the best traders, speculators and investors that I have studied (that took the time out to put into print what they figured out) to the best of my memory, did not mention the efficient market theory.
The best (top 5%) use Aristotelian logic to try and figure out how the world really works, but from what I can see, ultimately, being the best is an art form. Part of that art form being ruthless self honesty.
bob
Posted by: bob at October 11, 2005 06:21 PM