Ok so i'm trying to get my feet wet with some technical analysis. I am at work ATM but will download the incrediblecharts.com package at home and start incorporating some technical analysis into my fundamental approach.
Reading the following site...
Quote from www.taguide.com talking about resistance and support lines;
"In the case of Tyco above, when it finally broke below $40 around January 2002, the price subsequently collapsed, as is often the case when stocks break below support. As you can also see, there were times when the stock went slightly above or below the support and resistance points but went back—you might call those times “fake outs.” "
I can't seem to get my head around how yuo can make a general blanket statement about stock movements and say that when a stock breaks below support, it will collapse. Is this based on statistics and probability?
Each stock is influenced by its own unique forces, and unless these forces are the same every time such an event happens I don't see how you can make such a statement.
To me it's almost like those people at Star City Casino who record the outcome history of roulette rolls. I just don't understand why they do it and how they can rely on thinking they can predict patterns when it is theoretically impossible. I'm willing to concede with the stock market however that the human factor and other 'predictable' variables influencing share price can be manipulated to produce 'predictions'.
But a simple blanket statement such as the above without being qualified for X and Y variables? Is the guide being too simplistic? Or is it really just that simple? (Dangerously simple i might add)