Technical trading is one of the most widely criticized forms of investment. While the majority of the criticism comes from fundamental analysts – like Warren Buffet who said “I realized technical analysis didn’t work when I turned the charts upside down and didn’t get a different answer” and “If past history was all there was… the richest people would be librarians.”

There are two major flaws to technical analysis:

The first is simply that tech traders are what are also referred to as intra-day or day traders. Many day traders make upwards of 500 in and out transactions in a single day of trading. With per-trade fees running in at about $.30 for in-and-out buy or sell orders, that’s $150.00 per day just in fees, not to mention charting software and all the other tools (some traders pay over $1500.00 per month for screening programs).
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The recent implosion of the global equity markets – from Hong Kong to New York – engendered yet another round of the semipternal debate: should central banks contemplate abrupt adjustments in the prices of assets – such as stocks or real estate – as they do changes in the consumer price indices? Are asset bubbles indeed inflationary and their bursting deflationary?

Central bankers counter that it is hard to tell a bubble until it bursts and that market intervention bring about that which it is intended to prevent. There is insufficient historical data, they reprimand errant scholars who insist otherwise. This is disingenuous. Ponzi and pyramid schemes have been a fixture of Western civilization at least since the middle Renaissance.
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You have finally achieved financial freedom and may have achieved your version of success. You are living your dreams and pursuing your passions. You are a millionaire. The good news is that you have achieved a financial status that many people do not have the drive or ability to achieve. The bad news is that once you achieve this status, there are many people that will try to take advantage of your financial situation to their benefit and to your detriment. Keep in mind that not every investment opportunity that is presented to you will be bad, but you do need to be extra cautious of over zealous opportunists that have not fully researched or fully disclosed the ramifications of the investment opportunity.
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The two foremost analyses in predicting the capital markets are the fundamental analysis and the technical analysis. Both have their own advantages and limitations. Many investors use both of them together as complementary to one another.

Basis of Technical Analysis

The fundamental principle behind technical analysis is that the fundamentals get quickly absorbed in the price of an asset and, therefore, it is enough to concentrate only on technical. According to believers of technical analysis, it is not at all necessary to ponder over fundamentals of a stock or currency.

It is hard to comprehend and to accurately predict all the factors impacting the price of a traded unit. Moreover, it may also not be necessary to try to give too much attention to all the factors behind the prices of securities and currencies. Therefore, it may not be possible to grasp all the fundamental factors.

We are living in a highly informative age. Whenever there is any important news, it spreads quickly and all the players adjust their positions accordingly and fast. There are hardly any lags. All their actions get immediately reflected in the price of an asset. Therefore, price is the main barometer of the movement of a stock. That is the spirit behind technical analysis. Read the rest of this entry »