Here's an academically correct paper, The Predictive Power of "Head and Shoulders" Price Patterns in the US Stock Market by three researchers at the University of Iowa's department of finance that shows beyond the shadow of a statistical doubt that the Head and Shoulder pattern has an "economically significant predictive value for stock market returns".
A lot of advanced statistical mathematics in there but if there is one sentence I take away from this paper, it is this one:
"The evidence is consistent with the use of technical price patterns as a guide to trading decisions".
1 comment:
There is another research article written by the New York Fed entitled: "Head & Shoulders - Not Just a Flakey Pattern."
link:
http://www.newyorkfed.org/research/staff_reports/sr4.pdf
I can understand how others not familiar with techical analysis would dismiss entering/exiting a trade soley based on a pattern termed Head & Shoulders. But once you watch these patterns unfold in real-time it's amazing how well they work. Although some are prone to failures, they tend to signal the end of the trend is near.
JBetz
http://dormroomtechnicals.blogspot.com/
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