Reading prices

Some investors never read a company's accounts. They only look at its price curve.

That is technical analysis. Its idea: everything known is already in the price, and crowds repeat the same behaviour.

It has its patterns, with colourful names: head and shoulders, double bottom, triangle, flag.

Among researchers, it divides. Some studies find a slight effect. Others see it vanish once fees and biases are counted.

The most widespread tool is the moving average: the average of recent prices, recalculated each day.

For the example, over five days: one hundred, one hundred and two, one hundred and four, one hundred and three, one hundred and six. The average is one hundred and three.

The next day, the price goes to one hundred and ten. You drop the oldest, add the new one: the average rises to one hundred and five.

It smooths out noise, but it is always late. It says where the price went, not where it will go.

The most watched crossover in the world pits the fifty-day average against the two hundred-day average.

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When the short one rises above the long one, it is called a golden cross. Below, a death cross. The names impress more than the results.

Another notion: support and resistance. Price levels where a fall, or a rise, would tend to stop.

Often they are round numbers: one hundred euros, one thousand points. Many orders pile up there, so the price sometimes really stalls.

That is the paradox: if enough people believe in a line, they all act at the same place, and the line exists. Self-fulfilment, or illusion?

In nineteen fifty-nine, the researcher Harry Roberts showed that randomly drawn curves look uncannily like stock prices.

Our brain sees shapes everywhere. Even where there is only chance.

Last clue: volume, the number of shares traded. It measures the conviction behind a move.

A rise on heavy trading is carried by many people. A rise in calm may only be a breath.

A sudden drop on huge volume is often panic, or the last sellers giving up.

These tools describe crowd psychology, and many traders watch them. But they are not crystal balls.

The danger is multiplying round trips. Every order costs fees, and sometimes tax.

Remember: a chart tells the past precisely. For the future, it only gives probabilities, often weak ones.