If you’re not using technical analysis, you’re probably leaving some money on the table. Historically there were essentially two divided armed camps of investors. There was the fundamental analysis camp and there was the technical analysis camp and the two were constantly at each others’ throats. With the fundamental camp brandishing their copies of Graham and Dodd while the technicians scoffed and waved their charts dismissively. Recently however that animosity has been declining. People are increasingly realizing something:
Technical Analysis Is Simply A Tool
Despite the two camps alternately claiming that technical analysis was either the only tool or useless, people increasingly began to simply see it as a tool in their toolkit, to be used in whatever way was consistent with their market strategy. Some people weigh it very heavily, while others simply view it as a loose guide. I personally believe that its value has a lot to do with the behavior of market in which you’re trading at a given time.
For the Fundamentals Guy
If your strategy revolves around Price/Earning ratios and book values, you can still make valuable use of technical analysis. In certain markets I typically use a value investing approach, however I still find it useful to use technical analysis to find entry and exit points. If you can get a marginally better entry and exit point, even if you hold a position for years, it can make a substantial difference on your returns.
For the Indecisive
In the stock market circa 2009, there are a lot of questions. You look at the market and everything seems to boil down to either a deflationary environment, in which one set of investments is good or an inflationary environment in which the exact opposite set is ideal. While you can base a strategy around hedging, having the tools to ride the current market sentiment can be the best way to earn returns while things become clearer. If you have positions that may be appealing, technical analysis can make the difference between entering at the right time and the wrong time. If the markets continue to move sideways, technical analysis can be a valued tool
For the Skeptic
Another archetype who makes use of technical analysis almost exclusively is the skeptic. Some people look at fundamentals and think they are either tainted or meaningless. Obviously the kinds of asset bubbles we’ve seen recently have suggested that markets are far from efficient and wild price swings can have much more to do with psychology than reality. For these kinds of traders, the approach is to try to find objective ways to assess the market’s psychology. For this type of approach, technical analysis represents the fundamental tool, with other approaches being supplementary.
Learning More
If technical analysis hasn’t been part of your toolkit, or if you’d like to know how to use it more aptly you have a lot of options available to you. There are some excellent books available to you that can help you learn the fundamentals. Moreover you can spend hours back-testing and researching approaches. If you’re looking for a free way to educate yourself, there are free videos available on the Internet that can teach you quite a bit. These also have the advantage of providing up to the minute insight into the thoughts of the market. Ultimately education is always going to be the most valuable investment you can make. It simply doesn’t make any sense to leave a tool out of your kit.
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