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Technical Analysis by Michel Carignan


Do what we say but not what we do

      Even today, full service brokers and money managers criticize technical analysis, stating that it is merely a hoax. They prefer to make investors believe that the stock market is a serious matter, that it is for the long term and that they must be able to analyze the balance sheets of companies and be aware of all their projects, the inner-working of all their competitors and all the risks involved. Often, technical analysis is seen as the reason stock market investors can manage without broker advice.
      Yet today, as soon as we speak of the Stock Exchange, what we present are charts. Nevertheless, we find only a small percentage of private investors use technical analysis when thousands of professionals use it as their primary device of analysis.
      Many billionaires’ funds, mutual funds, banks and even stock markets utilise charts, real-time quotes and technical analysis. The experts use curves to analyze the quotes as well as all the other financial data: sales, profits, losses, indebtedness, etc... Without technical analysis, the private investor might be at a marked disadvantage. Moreover, many investors, after experiencing setbacks by investing based on fundamental analysis, have now decided to use technical analysis as their sole means of decision making.

Scientific not esoteric

      One should approach technical analysis like learning a foreign language. At first, everything seems to mean nothing, but the more time we spend practicing, the more we realize that it is neither magic nor superstition.
      The sayings come more from superstition. To say: "never two without three" is to be in error because it is completely random. Yes, if something has happened twice, it is highly likely to happen a third time. However, it is false to believe that it always happens that way! In fact, the saying would always be true only if structured in the following manner: "Never a third without the second".
      We often read and hear negative comments about technical analysis. It's so easy to talk negatively about what we do not know and understand. We often hear that the past is no guarantee of the future; the reality is that it is absolutely true. It is by approaching technical analysis in this light that we will realize that it is a science and not an esotericism. Nevertheless, technical analysis is not used only to read past price movements.
      I dare say that technical analysis is heavily derived from the logic of mathematics, which is a science. To say that technical analysis is not effective, would mean that an electrocardiogram is not helpful in determining a patient’s heart condition, because we only see the curves of the past heart beats. I do not believe that cardiologists would agree with that.

A reunion of factors

      There are several factors that must be taken into consideration. Firstly, there is of course, the price variation. Not to forget that charts start from a later date that leads inevitably to the present moment and moves towards the future. So there is a direction that can be projected and not just a phenomenon of repetition. Then, there is the volume of the transaction that confirms the validity of technical movements.

 

December 21, 2014 11:37
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