Monday, June 11, 2007

Chart patterns

Several weeks ago when I got into my small call position on SLW an investor on another blog made the comment that SLW was forming a head and shoulder pattern and so he would not consider buying this stock. Sometimes it is tempting to go ahead and complete a chart pattern in our heads and make investing decisions based on what we're "pretty sure" will happen. However Jack Schwager of "Market Wizards" fame notes that there is no evidence that chart patterns in general improve the odds of investors making a winning trade. As we can now see SLW did not break down out of a head and shoulder pattern. A 50/50 odds of something happening is not a great way to invest. You might as well just flip a coin.