What of Technical Analysis?

October 3, 2016

 

 

 

Warning: The occasional nautical term and/or possible Star Trek reference may crop up in the following.

 

What of Technical Analysis?

 

Good question. What do we make of these seemingly incomprehensible lines, doodles, patterns, and downright baffling comments we see, regarding what might happen next? Where is this futures contract going? What possible motive can there be for thinking this or that stock might take a jump or a dive? You can get an idea of the goings-on just by observing patterns? Really?

 

Maybe. Sometimes. Possibly.

 

For myself, I use technical analysis because it’s my comfort zone. What comfort zone is that? Maybe it’s from my background, which has been taking care of large mechanical objects; listening to, watching and identifying the knocks, rumbles and visual clues that might indicate good or bad things in the offing. Ship engines, mining machinery, that annoying rattle in the back of my fridge. Standard analysis language doesn’t always make me sit up and say, “Hey, that’s right on the money, I’m buying in!” Me? I don’t dismiss fundamentals or other analysis out-of-hand at all; I just have to get the charts out and begin watching and identifying.

 

When I post a diagram, more often than not, you will see a standard un-adorned candlestick chart. For the purposes of blog posting, I use these as illustrations. You are probably familiar with them; candlestick charts are wonderful things, originating in Japanese exchanges around the 18th or 19th centuries and popularized in the West about twenty-five years ago by Steve Nison. Until I got all computerized n’stuff, I drew candlesticks by hand on graph paper. Stop rolling your eyes at me.

 

Rather than being a complete candlestick nerd however, I use them as a foundation (as many others do) for a small methodology that incorporates a few other technical indicators. I also add some pixie-dust and chicken-bone rattling of my own, of course.

 

All that said, the myriad technical indicators out there can’t be blindly followed.  “What?”you say,”but…..” No buts. Captain, we are messing with forces we cannot possibly comprehend. We go for our own interpretation of what we see and hear. If you clog your screen with a host of technical indicators, all becomes gibberish in short order. You have to study them and see what works for you; see what speaks to you.

This can involve a lot of trial and error until you start noticing things. What things, you ask? Things; signs that make sense to your train of thought, testing them and all the while keeping a weather eye on what the fundamentals are. ( and what those smart analysts are saying.) In time, as a trader friend of mine once said, you will become a master of time and space……….. (I could have used a David Carradine/Kung Fu reference there, but I didn’t)

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