AT ONE POINT OR another, we’ve all gotten Web or direct-mail advertisements promising outsized gains from trading systems using technical analysis. The claims are always enticing, since boasts of mediocre performance wouldn’t elicit much response.
But think about it: If someone really had an airtight, foolproof method of consistently making money in the market, why on earth would they share it with you for a mere $39 a month?
That being said, I do think technical analysis is inherently superior to more traditional investing methods. Technical analysis is focused on analyzing the market itself rather than other fundamental factors we assume will influence the market. And because markets are generally not chaotic, but rather tend to move in trends, I believe the best indicator of XYZ is often XYZ itself.
It wasn’t too long ago when technical analysis was dismissed as pure voodoo. That’s changed in recent years. Not only has the advent of computer technology allowed price charting to become far quicker and more cost effective, but the limitations of traditional fundamental analysis have been evidenced during both the late 1990s boom and the early 2000s bust. (more…)