Technical analysis is widely used in the trading community to forecast the market. There are numerous texts on the subject. There are well known traders and authors who have made famous their particular niche, e.g. candlesticks, point and figure, Bollinger Bands®, etc.  

There’s even a body, the Market Technicians Association that offers a professional designation to candidates who have demonstrated expertise in the subject matter by passing three levels of rigorous testing and abiding by the MTA Code of Ethics.

Despite all this, traders seem to lack consensus in their opinion of technical analysis.

Differing Views

There are those who look at technical analysis as a science, swearing on this or that particular signal as an objective fact that good software should be able to interpret.  Some see technical analysis as an art, and still others see it as something in between.  While there are those who rely strictly on technical analysis to make their trading decisions, there are others who use it to fill in the gaps in other parts of their analysis.

For example, someone who uses a combination of fundamental analysis with technical analysis may use technical analysis to flesh out the whole picture, i.e. timing.  This may be, because they are hoping the market via technical analysis can paint a picture of the industry or the individual vehicle that would require resources or expert knowledge they do not have.  

In early 2009, STEC, Inc. (STEC), manufacturer of solid-state drives, was an early favorite among growth traders who followed the IBD 100 list.  It had led the market out of the last consolidation phase of the market and broke out of flag in early July 2009 with a bang.  However, weeks into the breakout, STEC began demonstrating concerning chart action that defied the good news, which was all that could be found about the company publicly.  Months later, STEC’s accounting discrepancies would come to light.

Is It All Reflected In Price?

Unlike firms, with their 50 subject matter experts who have access to industry knowledge and insiders, individual traders are offered the ‘news’ and company financial statements that may or may not accurately reflect the story of the company.  Alternatively, TA practitioners argue, price action can drill down to the information that may otherwise require extensive resources, time and expertise to understand.  Still others may argue that technical analysis can mislead, with holes in the analysis if the fundamentals or assumptions behind the chart action is not understood.  And there are still others, who say, “Who cares.  Follow your trading your rules if all else fails.”

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