In gloriam of technical analysis

If you have read some of my notes, you may have formed the idea that I hate technical analysis (ta). That’s not true. Dealing with r.Virgeel, I have seen the dramatic limitations of ta, but also some interesting aspects.

For ta, I refer to a program (or a website) that let you chart the price with some indicators overimposed, as trend lines, moving averages, RSI, Momentum, Stocastic, and a full library of others. The final aim of using it is to affinate the timing, having triggers that ring the alarm. Every platform is different, but you should always have a range of options to even automatically execute orders. And a plethora of indicators, you have to study them. Every ta tool has some lag encapsulated and gives a fantastic reading, ex-post and with “correct” parameters.

What I’m suggesting, is that ta is affordable locally, when you know that the probabilities of an event are in your favor: to accomplish this you must have a very clear, simple and realistic action plan and stick to it totally open minded. Also I suggest to experiment with automated execution, applying it “locally” to enter or exit a position with the help of some triggers. If you feel shy to make the transition from decision to act and acting in itself, this can help. Personally, I’m a big fan of personal execution.

Then we have Elliott’s Waves. It is considered a branch of canonical ta, with something esotheric. I love Elliott’s Wave Theory, even if I’m totally aware that is foolish to trade using just it. You know, as your eyes get trained in recognizing Elliott’s Waves, then you start seeing them everywhere.

Here in the chart, the Elliott’s Wave for current market is detected as shown, so we are near the end of the accumulating phase of a fifth wave that has two main targets, at 3000 and 3300, in EW’s opinion.


chart of weekly SPX from AdvGet

Some technical analysis programs or websites give the possibility to fully automate your trading or use an already existing bot to trade your account. Now, if any of these system should work, you will have plenty of multimillionairs around: what really happens is that the bot might gain some momey for a while, to inevitably crash as soon as the volatility changes, or another parameter goes mad, even if the system is sophisticated “enough”. Crashing the bot, you are out of play overnight, your account is zeroed soon and fast. Not nice.

Ta can be really useful, with few simple indicators and some active feedback, to have a good timing for your capital managment. Maybe in the ’70s and the ’80s , you could make money with just ta, today you have to gain some skill with it, but it’s not sufficient.





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