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Markets are emotional, not cerebral

Brian Marber

Wednesday, 21st November 2007

Is a bear market coming?

I have been a technical analyst — or chartist, if you prefer — for 55 years, since reading that the stock market is the nearest thing to the classical economists’ definition of the perfect market, where price is determined purely in accordance with the law of supply and demand. More buyers than sellers, price rises; more sellers than buyers, it falls.

Shares frequently lead separate lives from the companies they represent. Buying and selling is guesswork, but can be educated or uneducated; technical analysis being the former. Short on theory, technical analysis is long on empirical observation. Freed from unreliable intellectual and emotional preconceptions, the technician is well qualified to forecast what prices are likely to do. Technical analysis is the triumph of experience over hope; fundamental analysis, the opposite.

Fundamentalists look at what they think will affect price in the future. Technical analysts just look at price: the balance between supply and demand, including all knowable facts and fantasies.

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