There is something very stupid about suggesting a share's price or a sharemarket follows a pattern (ie formula). This "holy grail" idea of there being a pattern we can use to work out where a share or market is headed is contradictory. Basing our buying and selling decisions on discovered mathematical relationships in price movements DISTORTS THOSE VERY PATTERNS. To see why there must be no pattern, consider what would happen if there was one:
Suppose the formula predicted a share was to rise from $40 to $45. Nobody would ever sell the share below $45, then. So it wouldn't move from $40...and it wouldn't move to $45 either!! Therefore the market would not move as the formula predicted. The existence of the formula would destroy the possibility of it being correct. There may be a short-term strategy which yields greater than average returns, but it's not the holy grail you're after.
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In your contradiction you assume a perfect flow of information, allowing for everyone to have knowledge of this prediction. Any model is there for competitive advantage and will be relatively secret allowing for the market as a whole to continue.
Yet, even the best fail miserably - http://en.wikipedia.org/wiki/Long-Term_Capital_Management
Quite correct, the example I used was a simplification of the truth. I'm glad your understanding of the subject is nuanced.
For readers like you, however, I did mention that there may be short-term strategies yielding greater than average returns, but that they're not "holy grails".
I know the people who make short term gains aren't looking for holy grails, though :) However, I'm not sure if there are better than normal short-term strategies either. No more fund managers reliably outperform stock indexes than would be statistically expected to do so.
A higher than expected (50%) proportion of outperforming managers should actually exist in the market - those that don't simply go out of business and hence leave.
Wahahahahahahah, great observation
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