Technical Tools That Work

Yesterday, Gary B. Smith made reference to my Delphi comments on Wednesday (thanks for the kind words, G-man).

My key takeaway in this discussion — one that is easy to overlook — is the simple fact that technical analysis is a tool. Whether you choose to avail yourself of it or not is up to you. But I do not understand the insistence by some that it is of absolutely no utility whatsoever to anyone anywhere for anything.

That is simply a false statement. It may have little utility for Cody’s model, and that’s fine, but that does not invalidate it. 

I’ll let you in on a little secret: Jim Cramer is a closet Technician (he doesn’t even know it). Cramer is very aware of breakouts and break downs, talks of stocks trading "heavy," intuits relative strength or weakness; He also is quite conscious of trends.

These are all tools of the Technician.

Like other tools, there are craftsmen who do astonishing things with them. I may use a knife to spread butter on toast, while others use similar intruments to carve ice or perform open heart surgery. 

If you find any particular form of analysis (technical, fundamental, quantitative) that provides you with a way to improve your performance, that’s terrific. But I find it hard to understand why people are so dismissive of a tool that so many bright people have demonstrated a personal skillset with — one that makes them money.

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Ned commented on Oct 14

    Close readings of Warren Buffett and Peter Lynch will reveal that they like charts too. And they certainly do not consider themselves “technicians” at all.
    Like your blog a lot.

  2. spencer commented on Oct 14

    I do not use technical analysis. But I believe that you should use multiple tools. If they tell you the same story you can have a lot of confidence in your position. But if they start conflicting it is time to take a hard look at your strategy and reconsider what you are doing.

  3. duncan robertson commented on Oct 14

    TA has a way

    Subject to, various riders

    Kind regards

    http://www.shortorlong.com/

    understanding markets

    a speculator WAITS Till he KNOWS he is right, and a gambler guesses

    one must have a plan with fixed rules & patience, & DISCIPLINE, to be able to implement ones plan

    almost everybody knows next to nothing about the mysteries of money
    so what to do? Learn, what not to do, then work on, what you need to do

    From:
    Duncan Robertson

  4. Jos Theelen commented on Oct 14

    The reason could be, that a lot of scientific investigation shows that people see patterns, that aren’t there. Someone made a random graph and asked several subjects whether they see a pattern in it. Many of those subjects said there was some pattern in it.

    And just like you try to warn people about misleading numbers (like in the article about Fund Performance), other people try to warn that TA could be harmfull for your wallet.

  5. Lord commented on Oct 14

    Technical analysis can be considered the analysis of the diffusion of insider information into the market, but as we all know no one trades on inside information as that would be illegal ;-).

  6. my 3rd cappucino today commented on Oct 14

    Mr. R said:

    Jim Cramer is a closet Technician (he doesn’t even know it). Cramer is very aware of breakouts and break downs, talks of stocks trading “heavy,” intuits relative strength or weakness; He also is quite conscious of trends.

    Yout got that right.

    Except I think JC does know it, but doesn’t want to admit it.

    If you notice, more than half the stocks Cramer pitches on his show are IBD (investors business daily) faves.

    IBD — the first thing I wake up to every morning — is the technician’s bible.

    We also know that Cramer was one of the first subscribers to IBD when they were just a start-up created by an ex broker called bill o’neill.

    Not ony that, if you watch Cramer’s show — specifically during the lightning round — and measure his buy or sell recs against the specific charts of those companies, you’ll see that he’s basing the majority of his assessment on the chart, which I suspect pops up on his prompter whenever the caller announces it.

    “Ned” makes a great point about Lynch and Buffett — apparently, the best technicians are also the best at repressing it.

    How Freudian.

  7. Patrick commented on Oct 15

    TA used with other tools can be very profitable.

    The more indicators like TA used that look positive the more confidant I am.

    When the basket of indicators aren’t as clear the less inclined I am to make a move.

    For me,TA has been one of the better indicators and one that receives the most weight in evaluation.

  8. D.Wallener commented on Oct 18

    Who comes up with this stuff? Buffet is not a technician! Buffet makes his money by front-running his own reputation. For years his single biggest asset was his singular ability to skirt reporting regulations.

    It really takes a special kind of hubris to think that some yokel with a spreadsheet and access to free data from Yahoo is going to find something all the propellorheads and supercomputers working on Wall Street for the last 40 years have missed. Bottom line: TA does not work any better than random guessing and this has been confirmed by literally hundreds of peer-reviewed studies.

    The only people “using” TA are those with something to sell you: stock picking advisors and brokers.

  9. R. Tyler Banfield commented on Apr 18

    The previous comment was the most ignorant statement about technical analysis that I have ever read.

  10. Bringit commented on May 22

    Wallener – Good Post you hit the nail on the head, when it comes to “TA” that is a incontrovertible post. I assume this TB person assumes he is a cognoscente when it comes to “TA” . Nice post TB, You are depriving some Village of an Idiot.

Posted Under