Technical Analysis, Technical Analysis?

@John W is not 100% correct when he says that Technical Analysis does not work.

I will give you a good example where it is constantly being used and that is in institutional computer generated ordering....what do you think such computer programs are based on....not fundamentals of a company...why? Because the information is so spotty ...you only get updates on a financial picture of a company every 3 months...News? I do think that news is figured into some algorithms for computer trading...but I can imagine the difficulty of doing it in separating the real hard news from Pump and Dump.

So institutional trading is conducted by a variety of Technical analysis algorithms....and it probably works quite well as they pour a lot of resources into developing and maintaining such software. Also the algorithms to this software is a trade secret....any commercial software for the average investor is very suspect as far as I am concerned since IMHO the software is simply based on default accepted values...perhaps it is customizable but then the buyer of such does not want to configure it...it is over his head.

Technical Analysis does not come in ONE-SIZE-FITS-ALL. Most people who criticize TA know nothing about the process in the first place...at best they mouth words or opinion they have read elsewhere. I have studied TA for over 20 years and I am reasonably successful at it having been retired and no regular income/no company pension for over 10 years, only investment income. So to say that TA doesn't work is laughable to me.

Most books I have read on the subject are of dubious value. They stick to simple models of trending and simplistic discussions of indicators and their uses, most of which I have discarded after inspection...either because I have found too many inconsistencies, they don't fit my style of trading (day-trading TA is a bit different than long term TA...some thing are the same but you are looking for a faster response which works for interday but is a nuisance with false alarms in long term) or they are too complicated mathematically to understand.

Also, some people hang there hat on one or two indicators and wonder why they get wrong signals and make bad trades because of them....well the fact is that every indicator gives you a head fake once in a while...BUT THEY DON'T DO SO ALL AT THE SAME TIME. So my strategy is to take a consensus of the indicators...a 2/3 majority in a Bull or Bear direction is usually good...50/50 means indecision to me and makes the play a WATCH rather that a BUY/SELL.

As far as Fibbonacci ratios goes, I don't use them...I have not studied them much but they seem to be a bit arbitrary to me...on the other hand I have met chartists that swear by them. I also do not use Candlestick charts for their intended use...Why?...if you read a book on them...Steve Nison is the best author..but memorizing 3 figure candlestick patterns is a waste of time....UNDERSTANDING the BUYER/SELLER BATTLE that is shown is more important...besides this is more of a day-trader tool who needs to make fast decisions...but I do use candlesticks for "micro" resistance/support levels for market timing of buys/sells.

The market is really UNGUIDED...most investors trade on rumour and guesses...they don't understand TA beyond basic concepts and they don't understand how to read financial info either. They listen to the talking heads which are usually paid to give the analysis they give.

Technical Analysis is a viable tool...but it takes a lot of study to do it properly. Most people don't want to put in the necessary time and that time is 90% individual study as there are few courses that are not biased by wanting you to buy their software or service and as far as books go some are decent but not complete...you have to pick and choose the good stuff.

The one option to be successful with technical evaluation is expertise. In case you are afraid that a inventory is certain to fall, to begin with, you must normally have a stategy/plan to exit, reduce the losses very short, and secondly there are indicators such because the divergence of MACD & Stochastics that may inform you a stock is ready to alter direction, again you need to be skilled at seeing these things on the chart. A stock's path is predictable and there are a variety of day merchants that do that for a living and have lavish life. Similar to any industry, you have to gain knowledge of the best way to make big earnings in your just right trades and reduce bills by way of cutting your losses sharply. You have got to emerge as an pleasant money supervisor.

It actually isn't a fact that it works, all academic studies have shown it to be generally ineffective, many famous investors such as Buffet have said that it's ineffectual for them. There's nothing wrong with using past performance to gauge future performance but many technical analysis techniques have no basis and many people who use technical analyst ignore the fundamentals behind the tools they are using. The true weakness is that many analysts simply don't understand what they are doing with technical analysis and just follow a lot of buzzwords instead.

Here's a question for you, since you are using fibonacci ratios? Why would fibonacci ratios be pertinent?