If you have been following me for a while, you know that I’m not too much of a technician. I like the fundamental approach and make good use of timing in sector while investing through asset allocation. When it’s time to talk about technical analysis, I’m not quite sure what to think about it.
As for my personal use, I simply consider technical analysis when I’m about to buy a stock. I check a free report called Trend Analysis giving me a few indicators with a moving average. It basically tells me if the stock is on a roll or in a slump. Besides that, I don’t use any other technical metrics.
Moving Average, Fibonacci, Elliott Waves, Candle Sticks and the Others
There has always been a great fight of ideas between fundamental investors and technical analysis practitioners. On one side, fundamental investors read financial statements and look at “classic ratios”. If you follow my stock analysis template, you are pretty familiar with this investing method.
The technical analysis approach requires statistical data and multiple graphs. According to this investment technique, you should be able to determine the trend of a stock by the analysis of its past movements. You should not only be able to tell if the stock is going up or down, but you should also point out the entry levels (bottoms) and exit levels (summits).
Technically, this means that one could invest in a stock when it’s down and sell it when it goes back up and know approximately when to do it. It’s like reading the stars or doing storytelling but with the stock market.
But they don’t have to read the CEO’s palm to find the stock’s future, they use numerous statistics along with various graphs. You may have heard of moving averages, Fibonacci ratios, Elliott waves, Japanese candle sticks. I once wrote a piece about moving averages and the results are quite interesting (you can read how moving averages work for stock trading). I was shocked to see that this method seems to work but still, I’m not a believer.
Are They more than Believers?
What I find fascinating about technical analysis is not the trading process by itself. To be honest, I like math but doing technical analysis is just too much time to stare at graphs for me. However, what I truly find fascinating about technical analysis is the number of believers.
Everywhere I go, I meet with people who believe in this investment technique. They talk to me about the method to find shapes and trends within graphs. They use moving averages, Fibonacci ratios, Elliott waves, Japanese candle sticks and sometimes Shaman’s magic powder to throw at the screen.
There are so many metrics to follow that each investor builds their own system. They test and try and look at past graphics to see how it goes. But the thing is; I find it pretty easy to explain what already happened. Where were all those people when the sky was falling in 2008?
Can You Really Predict Stock Prices With Graphs and Stats?
Take the method you want, take the graphs you need, but please, tell me something that I don’t know. Maybe it’s just me and I don’t know enough about it, but let me ask you: how come all technical analysis traders didn’t become filthy rich in 2008?
I mean, it was quite hard to predict such a crisis if you were a fundamental investor. However, if you follow trends on the stock market, you could have to be able to predict trends, right? Isn’t it the ultimate goal of technical analysis; predict trends following stats and graphs?
I don’t need someone to explain me what happened on a graph, I need someone to explain me what will happen based on the same graph! You can find technical analysis believers by millions but only a handful of people made a killing in 2008. I’m not even sure if those guys were heavy technical analysis fans on top of that.
This technique wasn’t able to establish a solid ground during the most volatile market, this is why I’m not a believer. On the other hand, fundamental investors like me found great deals during that hectic period. Over the following years, we were able to make a lot of money based on real reasons such as profits and sales growth!
So I’m asking you; do you like technical analysis? Do you do it? How successful are you?