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Technical Analysis by Michel Carignan


      The credibility of the volumes is often challenged by those who do not understand them, because they often contain irrelevant volumes on price movements, which, tends to mislead the analysts. Sometimes they are valid and other times they are not. The case stems from the fact that they do not all come from buyers and sellers acting in the heat of the action. The floor is a regulatory agency where all transactions must be channelled, not just the transactions which are part of the battle between buyers and sellers.
      In fact, the transfer of shares from one company to another, the trade of inventories between brokers, the IPO’s and many other types of transactions which are usually planned in advance, create abnormally high volumes and just shuffle the cards. Once the volume is divided by the number of transactions we can confirm or disprove the validity of an unusually high volume. Volatility is another factor.
      Factors influencing the decisions of experienced technical analysts are numerous. To cite a few, we have the direction of the market and the sector, the number of industry’s stocks that are moving in the same direction, not to mention the mathematical formulas developed by leading mathematicians whose percentage of success is difficult to question.

What is technical analysis really?

      Technical analysis is the art of analyzing the behaviour of supply and demand created by buyers and sellers towards stocks. It is used to determine the direction and strength of the movements, their amplitude and to evaluate the continuity potential of the upward and downward movement of prices.
      In other words, it is the art of observing the actions of buyers and sellers to identify the scenario that is taking place. Technical analysis is a comparative, quantitative and qualitative analysis. The more we have stocks that move in the same direction, the more likely that the expected scenario occurs.
      In fact, the theoretical part of technical analysis is very simple. The chart patterns are not that complex either. Cycles, trends, resistances, supports, volume, number of transactions, the buy and sell signals compose the menu. Technical analysis is not only used to make the right choices but also to pick the right time. Thus, one of the first lessons of technical analysis is to not buy just anything at anytime.
      The charts come from the quotes, that come from transactions, that come from decisions, that come from institutions or professional/private investors. The analysis of a stock is not enough, just as in the fundamental analysis of a company. We must know as much as possible about everything that can influence the future. In technical analysis, it is the same; what the markets and other companies do in the field is equally important. Technical analysis is thus an amalgam of factors.
      It's like in golf. It is not enough to know how to hit balls in the practice field. You must, however, know all the different aspects of the game. Understand the tee shots, the approach shots, the short game around the greens and the putting on the green, not to count all the shots that must be improvised in unusual positions. The more you learn, the more you practice, the more you improve. It is neither magical nor automatic because you will always have to develop a discipline as well as emotional control.
      The understanding of the theory is the easy part... However you must develop a trusting attitude. It does not suffice to analyse past quotes, they must be linked to the real time ones to be able to predict the future. After analysis, you must make a decision and implement a strategy defined at the outset. Afterwards, all that remains is to maintain it.

 

November 21, 2014 11:20
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