After some recent events over the weekend, I thought this would be as good of a time as any to remind everyone, once again, what Technical Analysis actually is….
Technical Analysis is the study of the behavior of the market, and therefore its participants, as opposed to the goods and the services in which a particular market deals.
If you are recognizing that the trend for stocks is up, or maybe down, you are a Technician.
If you acknowledge, in any way, that the fed purchasing bonds impacts market prices, you are a Technician.
If you think volatility for stocks is low, or high, or that the Volatility Index $VIX is even a thing, you are analyzing a price derivative of the S&P500, and therefore, performing classic technical analysis.
Are you analyzing the behavior of the market and its participants, or the goods and services in which the market deals?
All of these above represent the former, and completely ignore the latter.
I speak to quants constantly. Are those inputs price based? Yes most of them are.
Is half the P/E ratio not Price? Or am I reading that wrong?
Analyzing the behavior of price, or “the market”, is a far cry from the goods and services in which a market deals.
Do you think sentiment is too bullish right now? Or perhaps too pessimistic? Uber driver gave you a tip? Hair dresser YOLOing bitcoin? You’re analyzing the behavior of market participants, not the goods and services in which that market deals with.
Most investors are Technical Analysts in one form or another. Some want to admit it and many do not.
Life is not just about colorful squiggly lines and Fibonacci retracements. Those are a few, somewhat useful tools, that can help supplement all the more important stuff.
But price is what pays. And if our profits are solely dependent upon selling assets at higher prices than where we purchase them (and not necessarily in that order), then shouldn’t the decision making process begin and finish with the study of price?
Yes. We believe so. And so do our clients, who include many of the top banks and hedge funds on earth. I know for a fact how important price analysis is to their process. We’re talking about MANY, not just a few, multi-billion dollar hedge funds and RIAs regularly telling me that they couldn’t do their job properly without Technical Analysis.
You really really see this notion stand out when it comes to risk management. Ask any of them. They’ll all tell you the same thing. This is what matters most. And you need to analyze price for that.
After managing risk, the next most important thing is identifying trends and riding them out.
Again, price analysis…..
Just embrace it.
You’re a technician.
It’s a great club. Trust me.
And everyone is welcome.
Just be nice. That’s the only rule.