Thoughts on Technical Analysis
Every so often, a reader will inquire about recommended books on TA. I cannot
recommend any because I have never read any. I can however recommend the ‘Chart School’ section at the stockcharts.com website: http://tinyurl.com/nftrh113b for the basics. These tools may not work unless they are married effectively with the ‘human’ element. In other words, the data points and the analyst must get along well together.
I once heard big daddy (AKA stockcharts.com founder John Murphy) say that there is no
‘one size fits all’ in TA. He went on to say that one should take what works and leave the
rest. He has published books – which I have not read – available here:
http://tinyurl.com/nftrh113c, FYI.
I agree strongly with Murphy in that regard. I see many technical analysts doing things
that are beyond my ability to comprehend. I was never much good at math and being a
right brained ‘visual’ learner, I have always seen things in pictures. So dumbing down
TA to what works for me – visual resistance and support zones first and foremost – has
been the way to go. In other words, when combined with a personal interest in
psychology and human behavior, what I use is rooted more in black magic than in
science. I also call upon the experience of 12+ years of seeing things in charts with the
result being that I often have ‘hmmm, seen this before’ moments.
TA will however, provide some hard and fast rules regarding the implications of above
noted support/resistance, the tendency of retrace levels to repeat and of certain patterns to
do what they usually do. So yes, learn about the basics but be prepared to incorporate
who you are into the process, as long as whom you are is not overly biased. ;-). Moving
averages and their relationships are helpful, as are the momentum indicators (MACD,
RSI, etc.) when used in conjunction with the price activity of a particular equity.
Those tend to be finite things whose messages often should not be argued. What is less
finite is for example when a stock or market drops below support, driven by
inflammatory news and atypical holiday trading like say… with the recent Thanksgiving
week downward thrust? That was mostly b/s detector and patience my friends, along
with the experience of knowing that moves that occur due to excitable news are rarely
sustainable.
Daily topping patterns appeared all around, but there was the anti-market, the US dollar,
driven up to technical target by news. I personally did not buy it
http://tinyurl.com/nftrh113a, even as I made preparations for the possibility of being
wrong. Bears who saw topping patterns and acted upon them, were punished for not
smelling a rat during that very noisy period of market weakness.
Just last week NFTRH112 illustrated a topping pattern in the PRPFX fund along with a
projected potential buying opportunity. This did not materialize and markets have
negated the topping patterns far and wide. Stand-alone TA did not work. I am
comfortable with this however, because I would rather be a stingy buyer and highlight
things for readers that appear to have excellent risk vs. reward. At least when we do hit
on an opportunity, we will know that we have better probabilities for success than if we
were pure stock picking or momentum riding.
A short note has turned into another ramble, so I will conclude with a simple thought; TA
should be an extension of the individual and said individual’s experience in the financial
markets. There is no one TA method that is the Holy Grail. If there were, the markets
would not be filled with so many wise guys getting it wrong as often as right. Make it
work for you or take it with a huge grain of salt.
http://www.biiwii.blogspot.com
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