There is a lot that we can learn from Warren Buffett, who many consider to be one of the greatest investors of all time. To me, the most important lesson of all of them, and there are many, is that there are no called strikes on wall street. In other words, in liquid markets, you are not penalized for "missing" a trade. This is a lesson that took me many years to finally understand and is something that has helped me tremendously.
If you wish to know the road, inquire of those who have traveled it
Technical Analysis is relatively new to us in the Western world. Charlie Dow originally wrote down his principles towards the end of the 1800s. But technical analysis can be traced all the way back to early 18th Century Japan when the Dōjima Rice Exchange began to issue and accept rice warehouse receipts. These rice receipts were essentially the first futures contracts ever traded. My man Munehisa Homma originally started trading at his local rice exchange in the port city of Sakata. This is why you frequently come across the “Sakata Rules” regarding Japanese Candlesticks. After Homma dominated his local markets, he went to trade in what today we call Tokyo. In order to learn about the psychology of investors, Homma analyzed prices on the rice exchanges going back to the 1600s.
Polarity is where it all begins, guys. This is supply and demand 101. We talk about momentum and we talk about trends. We use words like Fibonacci, Divergence and Moving Average. This is all fine and dandy, but all of these are only a supplement to actual price analysis. Price is the only thing that pays. So price, by definition, is the most important technical indicator that exists.
Today we are going to discuss the Principle of Polarity. In order to do so, we first need to define support and resistance:
I look at a few hundred charts per day across multiple timeframes, and thousands each weekend, but I very rarely find an idea that's actionable at that particular moment. This begs the question of why I look at so many charts if they rarely lead to actually putting on a trade, to which the answer brings us to the title of this post.
When utilizing a top-down approach to technical analysis, every liquid global asset class provides some type of information that's useful, even if you don't trade that asset class directly. Instead, each new piece of data adds to the pool of information that we as market participants use to make decisions. When the weight of evidence suggests a more probable outcome, that is when it's appropriate to put on a trade that expresses that theme or thesis in the most capital-efficient way possible.
This Thursday March 24th, I will be presenting at an all day live webinar presented by Investor Inspiration. I will be joining six additional speakers and my time slot begins at 1:45PM ET.
During my session, we will be discussing some of the basic technical analysis principles that I incorporate in my work every day. These include Supply & Demand analysis, Momentum, Fibonacci, Correlations and how to use Moving Averages for trend identification.
Fibonacci Analysis is one of the most valuable and easy to use tools that we have as market participants. I've studied supply and demand behavior for over a decade, and I find myself using Fibonacci tools every single day. These tools can be applied to all timeframes, not just short-term but longer-term. In fact, contrary to popular belief, technical analysis is more useful and much more reliable the longer your time horizon. Fibonacci is no different.
How often do we hear one person ask another, “So what are the charts telling you?”, or “What does that chart say?”. Think about that. Charts don’t actually say anything at all. They’re charts. Charts don’t speak. So why do so many people want to know what the charts are saying?
Technical analysis is the study of the behavior of the market and market participants. The most important tool that we have as technicians is price. Movements in the price of an asset represent the changes in equilibrium between supply and demand. It just so happens that the best way to visualize these changes in equilibrium is in chart form. This is why many technicians prefer to be chartists. It is not necessary for a technician to use a chart
Over the next month I will be giving several technical analysis presentations on the east coast and all of you are invited to join me. Some of you have seen me give these before, so just know that they are all different. I try and tailor the educational content to the current market environment that is obviously always evolving. Here are the upcoming dates and details:
Momentum is a word that is used an awful lot when referring to public markets. You hear people talk about "momentum stocks" or how they're seeing a "momentum shift". Unfortunately most of these references are just off-the-cuff sort of statements that don't have any real meaning. "It sounds good, so let's use it", kind of mentality. For me, it is a really important part of my process and I want to explain to you how I use it.
First of all, I am not an oscillator junkie. We all know that guy with 27 indicators plotted beneath the price on a chart. That isn't me. I like my charts clean. It's amazing how much you can see when you just get everything else the hell out of the way. My preference is a 14-period Relative Strength Index, otherwise known as RSI. Don't confuse this with
