Technical Analysis Is Stupid

"Stupid is as stupid does."
-- Forrest Gump

Financially speaking, I define stupid as anything that loses me money. On that basis, I find technical analysis quite stupid indeed.

In case you're unfamiliar, investors generally break down into two main camps: fundamental analysts and technical analysts. Fundamental analysts invest based on factors such as the quality of a company's management, growth prospects, return on equity, price-to-earnings ratio, and macroeconomic factors. In contrast, technical analysts invest based on a company's stock price movement and volume.

Based on the evidence, I'm convinced that buying stocks using technical analysis will lose you money.

How they try to beat the market
Before we go further, let's review how each camp tries to beat the market.

Fundamental analysts explain that shares of a company's stock represent a piece of a business. Ultimately, investors are buying a piece of that company's future cash flow generation. Whether they're growth investors or value investors, their research and analysis aims to give them a feel for these future cash flows. When a company's stock price underestimates a company's earnings potential, they buy.

Technical analysts argue that fundamental analysis is redundant, because all relevant information is already represented in a stock's price. In its strongest form, this theory agrees with the efficient-markets hypothesis, which holds that there's no legal way to beat the market -- with one key exception. Technical analysts believe that price patterns repeat themselves, because we humans react similarly to similar market events.

Why technical analysis will lose you money
On a basic level, fundamental analysis makes sense to me, but technical analysis falls short.

To illustrate, I've put together a table that shows how six companies break down on some key metrics that fundamental analysts would look at. The first three companies compete against each other in the megaretailer space. The second three companies all manufacture large equipment:

Company

P/E Ratio

5-Year Growth Projections

Debt/Equity

Operating Margin

Costco (Nasdaq: COST  )

22.9

13.7%

22%

2.5%

Wal-Mart (NYSE: WMT  )

14.6

10.6%

58%

6%

Target (NYSE: TGT  )

17.0

13.6%

110%

7.1%

         

Caterpillar (NYSE: CAT  )

46.9

14.3%

363%

4%

Boeing (NYSE: BA  )

37.9

8.3%

607%

2.7%

Deere (NYSE: DE  )

28.2

9.8%

497%

9%

Source: Capital IQ (a division of Standard & Poor's) and Yahoo! Finance.

The first thing you should notice is how different the numbers are within a sector. For example, Target and Deere generate around three times the operating margins of Costco and Boeing, respectively. Of course, you have to factor in Target's greater leverage versus Costco, and the fact that Deere manufactures vastly different products than Boeing.

The disparity gets even more outlandish across sectors. Compare Costco's minimal leverage (debt-to-equity of 22%) to the massive leverage of all three manufacturers. And that's before taking into account the huge differences in price multiples and growth rates.

Just looking at these four basic metrics and the factors that drive them, you can start to see how complex valuing a company can be. You can also start to see how two intelligent, rational investors could have markedly different opinions on each company we've discussed. Considering these points and the wild price swings of Mr. Market, I find it very hard to believe that there isn't any opportunity for smart investors to use fundamental analysis to earn excess returns.

Meanwhile, technical analysts ignore everything we just talked about. They hold that the only thing that matters is patterns. You can ignore profitability, sales growth, debt position, industry, management, regulatory environment, country of operations, etc. If two companies, no matter how wildly different, happen to have similar historical charts, a technical analyst will predict similar outcomes for each.

That simply doesn't make sense.

But again, the proof is in the profits. Technical analysis is only stupid if it loses us money. Speaking of which….

The damning evidence
You don't have to look too far to find empirical evidence backing up the merits of fundamental analysis. The pantheon of successful investors tells the story. Ben Graham, Warren Buffett, Peter Lynch, John Templeton, Shelby Davis, Philip Fisher, George Soros, David Dreman, John Neff, and many others all soundly whooped the market using fundamental analysis. They all have different approaches (for instance, Soros tends to focus on macroeconomics), but there isn't a technical analyst in the bunch. In fact, I defy you to name a group of technical analysts with a long-term track record that comes anywhere close to the names above.

The more you dig, the weighter the evidence against technical analysis gets. An October 2009 study by New Zealand's Massey University tested more than 5,000 technical analysis strategies in 49 different countries. The result? Not one strategy generated returns that aren't predicted by chance.  

Let me repeat that. Not one.

Don't believe the bluster
So if you hear an anecdotal story of technical analysis glory, remember that a bad strategy can win you money based purely on chance. Especially in the short term. The worst poker player at the table may double up early, but he's best advised to take the money and run.

I believe that investing is also a zero sum game; in every trade, someone wins and someone loses. Over the long run, savvy fundamental analysts take money from technical analysts. If you are a technical analyst and you still have your shirt, take the money and run ... toward either indexing or fundamental analysis.

For the fundamental analysts out there (both old and new), here is one company our Motley Fool Inside Value service has identified as a "Best Buy Now."

We Like…

P/E Ratio

5-Year Growth Projections

Debt/Equity

Operating Margin

Weight Watchers (NYSE: WTW  )

11.9

15%

N/M

25.9%

N/M = Not Meaningful.

I invite you to join us and see all the analysis we've done on Weight Watchers, as well as the other stocks that rank as "Best Buys Now." If you don't think we're helping you beat the market, you can cancel at any time. Click here to get started.

Anand Chokkavelu can't say "take the money and run" without thinking of Billy Joe and Bobbie Sue. He doesn't own shares of any company mentioned. Costco Wholesale, Weight Watchers, and Wal-Mart Stores are Motley Fool Inside Value selections. Costco Wholesale is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Costco Wholesale and has a disclosure policy.


Read/Post Comments (55) | Recommend This Article (76)

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  • Report this Comment On April 30, 2010, at 2:55 PM, ChannelDunlap wrote:

    Are you trying to call me FAT?!?!

    LoL, good article. Couldn't agree more. Though some minor technical guidance when you're considering entering or exiting a new position can be useful, I would never go buy or sell purely on a chart. That's just silly.

  • Report this Comment On April 30, 2010, at 3:04 PM, mtwashingtonmike wrote:

    I never met anybody who uses technical analysis when making a long term investment. I have known plenty of traders who use is with some success. If you are investing for 6 months or more technical analysis is just about pointless. However if you are making short term trades or trading options I have found moving averages, bollinger bands and several other technical tools to be extremely useful and profitable, and I have been in the market since 1983.

    That being said I would call myself an 80-20 man. Eighty percent fundamental analysis, 20% technical. If you ignore TA or dismiss it you are leaving money on the table.

  • Report this Comment On April 30, 2010, at 5:03 PM, greedwhenfearful wrote:

    If technical analysis worked, anyone with a computer would be a millionaire.

  • Report this Comment On April 30, 2010, at 5:27 PM, mdmaloner wrote:

    The majority of commodities traders use technical analysis exclusively - and very successfully. First time I heard one of their presentations I was shocked, but that is how the industry works...I'm sure your challenge was referring to trading equities though, so let's call this one a draw.

  • Report this Comment On April 30, 2010, at 5:54 PM, etosha wrote:

    Thank you mtwashingtonmike, as this article is about INVESTING and a lot of technical traders do just that, they trade. They are in and out.

  • Report this Comment On April 30, 2010, at 5:56 PM, stan8331 wrote:

    I'm sure it's possible for individual investors to make money using technical analysis, but to me it's a high-risk, high-stress, low-margin endeavor in which the individual investor is at a great disadvantage (unless you happen to have a couple of Crays in your garage AND the knowledge to program them effectively) competing directly against the likes of Goldman-Sachs.

    There probably is a place for technical analysis in timing long-term investments, although I'm not convinced that it's terribly useful even there.

  • Report this Comment On April 30, 2010, at 6:24 PM, Maple6239 wrote:

    Over and over and over again, technical analysis [of stocks] has been shown to be useless for investing.

    But, except in specific circumstances, fundamental analysis is also fruitless.

    FA can generate inordinate returns in a couple of situations:

    First is when a particular analysis beats the rest to the punch. If you are the first [or, maybe even among the first few] to incorporate new information, you should win [on the average, over time]. [Of course, trading on inside information is illegal.]

    Second, is when trading of the stock violates the assumptions of an efficient market. For example, if few investors follow the stock, it is thinly traded, or information is constrained somehow, then the market for the stock is inefficient and anything can happen.

    For the ordinary retail investor, fundamental analysis is a waste of time. The stock has already been analyzed by professionals. It is extremely unlikely that we amateurs will uncover anything that the pros did not.

    The smart strategy for most of us is to diversify our holdings and bet that the overall economy will progress over time - perhaps via mutual funds or ETFs such as SPY. Or, if you can bear some risk, dabble in stocks that are traded in inefficient markets and hope.

  • Report this Comment On April 30, 2010, at 7:01 PM, dc46and2 wrote:

    Investing is not a zero-sum game. A profitable business takes investor's capital and puts it to good use. The only way the business can succeed (honestly) is to provide goods or services that are more valuable to society than the resources it consumed during production. Society benefits and the value of the company increases. When the investor sells the stock for a profit, no one is getting ripped off. The stock price is higher because the underlying assets have grown in value or are reasonably expected to in the near future.

    One might argue that trading is different than investing, and that trading is a zero-sum game. But even trading benefits society in the long run. It keeps the market liquid and reduces volatility. Fundamental investing would be much more difficult and risky if it weren't for traders.

  • Report this Comment On April 30, 2010, at 7:21 PM, gman5556 wrote:

    Well if it wasn't for day traders of technical analysis Mr. Market wouldn't provide the swings value investors need.

    So traders and tech analysts, keep working and losing money in the long run. We need you to make money off of.

  • Report this Comment On April 30, 2010, at 8:14 PM, dsg2003gt wrote:

    I feel like using fundamental analysis to pick the stocks you want to invest in, and unless you are dollar-cost averaging, using technical analysis to time your trade when the stock is at a low point. Or, you can just wait for Mr. Market to have a bad day and put your stock on sale between 5%-10%. I bought today btw.

  • Report this Comment On April 30, 2010, at 8:39 PM, peters46 wrote:

    I used to use both. Some stocks just seemed to cry for technical analysis (not day trader style). They would drop maybe ten percent every quarter, only to recover that 10% and maybe gain another 2-10% - every quarter. My only big mistake with that was that around $30, NFLX seemed to bob between 28.5 and 31 once a week. So I sold half of mine (only 100 shares) at $31.18 thinking I would buy it back at about 29. It never got back there and I didn't quite have the cash to buy it back higher. So I missed out on the $70 gain on that 100 shares. But I also made 35%/yr on several stocks that way, so I won't say don't. If you do, make sure you know the company, and don't go wild, once in a while you will have to wait an extra quarter to trade in or out.

  • Report this Comment On April 30, 2010, at 9:17 PM, ratherblucky wrote:

    If a stocks value can be determined by fundamental analyses, why does the price of a stock vary from minute to minute and day to day? If fundamental analyses is so quantifiable, why do analysts come up with different values of a stock? The price of a stock is determined by what someone is willing to sell or pay for it. The price of equities or commodities is determined by the demand created by buyers and sellers whether they be fundamentalists or technical traders. The demand created that drives the price of the stock does not care which of these investors/traders creates the demand.

  • Report this Comment On April 30, 2010, at 11:18 PM, ARJTurgot wrote:

    At its core, Technical Analysis is an assessment of market volatility. That range prediction that it comes up with is very close to the implied volatility of Black-Scholes. The empirical data on B-S suggests that it is fairly accurate on shorter-term valuations.

    And, if fundamental analysis worked at all times in all places, there would be no undervalued or overvalued stocks.

  • Report this Comment On May 01, 2010, at 1:15 AM, dreamindedalus wrote:

    I think the generalization of market participants as being either technical or fundamental analysts, undermines the theory that technical analysis is completely worthless. If half the market participants are using technical analysis to time their trades in and out of stocks, shouldn't technical analysis by valid at least half the time? Furthermore, we might assume from your description of companies that "fundamental" analysts must find some stocks more appealing than others; the corollary might, then, suggest that the market for the "less appealing" stocks must be composed of an even larger percentage of technical analysts.

    Of course, while the bulk of my own net worth sits in various flavors of index funds, I have recently made some use of technical analysis (with, what I am pleased to report, is more success than failure). I certainly cannot testify to the long term success of such strategies, but I do find that technical analysis seems to do a better job of predicting the short term price moves of stocks in response to recent news events as well as providing analysis of companies for which I lack the expertise, or research, to fairly value.

  • Report this Comment On May 01, 2010, at 3:22 AM, LatifK wrote:

    There is money to be made in TA, and its simply because there are enough of them out there that TA holds some water in the short term. If you can stay ahead of OR at least in the middle of the pack, you make out. If your behind the other TA's you catch the loosing end of the transaction.

    In the end though, TA is worthless a few months to years out. Its great if your in the casino kind of mood, but if you intend to stay in the market you can safely ignore TA and focus on fundamentals both macro and micro.

    Cheers-

  • Report this Comment On May 01, 2010, at 8:06 AM, GreenPhotog wrote:

    A chart starts going down on a "good" stock. Every top stock goes down at some point. Why would an investor want to follow a stock down? Technical Analysis would have told you to get out of the stock, based on volume and overall market action.

    I've seen many stocks five-star rated by Caps Community not really do anything. In the meantime, Investors Business Daily's CAN SLIM method, using both fundamental and technical analysis, seems to be a better predictor of a stock's growth prospects, I think.

  • Report this Comment On May 01, 2010, at 9:48 AM, LiveMoney wrote:

    Market prices are always set by sentiment and expectations. These are in turn created by many factors and have differnt time scales and scope.

    I agree that FA is best for the overal picture. FA can also trigger short term price changes, becasue of new information coming out about the company's fundamentals such as financials, scandals, etc.

    However, TA works in the short run, because there are market players out there who believe in it, and who follow it principals, as archane and bizarre as they might be. I think that if there were no more significant numbers of people who believed in TA, then TA would no longer work for them (remember markets work on perceptions and future expectations, not facts, so even if TA results in nothing more than "monkey's picking stock winners").

    In then end, all securities are valued by expected future cash flows, and nothing else. Just remember that to TA afficionado, their cash flows are trading cash flows, not company fundamental cash flows.

    I agree that TA is a crock, but as long as there are TA people out there, then TA people will cause the prices to change the way TA people expect them to.

    There is sort of a battle bewteen these forces e.g. the TA people think the price will go up based on "momentum" or some other thing, and the fundamentalists think that the stock will tank because their market share is dropping, resulting in lower earnigns. So one group sells, and the other buys.

  • Report this Comment On May 01, 2010, at 9:56 AM, ragedmaximus wrote:

    i think if we could find a stock you like and be alerted to when a fund enters a stock or exits a stock would be a good indicator of short term movement

  • Report this Comment On May 01, 2010, at 10:44 AM, Superdrol wrote:

    The best example of fundamental analysis is Allied Irish Banks.

  • Report this Comment On May 01, 2010, at 11:10 AM, ragedmaximus wrote:

    the motley fool needs to have a fund tracking service so people will know up to the minute acess to when large money funds go into and out of a stock.i looked online and came up short literally!

  • Report this Comment On May 01, 2010, at 11:15 AM, ragedmaximus wrote:

    ok i found on its ici investmentcompany institute i will be checking it out it looks interesting also dont ask for url whatever im no computer geek so google it!

  • Report this Comment On May 01, 2010, at 11:25 AM, ragedmaximus wrote:

    ok forget ici go to wallstreet journal market data center shows buying on weakness and selling on strenght relative to money flowing into and out of stocks looks like short term tips

  • Report this Comment On May 02, 2010, at 12:03 AM, henryking54 wrote:
  • Report this Comment On May 02, 2010, at 12:07 AM, Superdrol wrote:

    Fundamental analysis helps you understand why you held on to a losing stock because 'fundamentals' told you so. (i.e. Allied Irish Banks).

    I've read more than one occasion on ppl who averaged on on AIB.

  • Report this Comment On May 02, 2010, at 12:36 AM, elricor wrote:

    Ta works for short term investing...watch most stock charts (not so much companies like Walmart, Apple), and they will always pull back or start to climb at fairly predictable points based on overbought/oversold conditions and other tech factors. Now you just can't ignore macro issues or individual issues with the stock your watching, that's foolish, but you can certainly use TA to pocket gains or entry points. It takes discipline though!

  • Report this Comment On May 02, 2010, at 1:32 AM, MyDonkey wrote:

    Weight Watchers is a good suggestion. If you think Americans are fat now, in another 5-10 years we'll be a nation of jiggling parade balloons eating pulled-pork sandwiches and donuts on our way to a Weight Watchers meeting.

  • Report this Comment On May 02, 2010, at 11:02 AM, GrumpyOldGuy wrote:

    I hear the "TA is stupid" statement from people all the time but for retail investors, FA is also stupid. The investing gurus tell you to be prepared to spend an hour a week checking out the fundamentals of each stock you own or want to own. Do you really think you will find something that the pros didn't already know last week?

    So my plan is to buy as many investing letters as I can afford. While this will cut into my investing capital I will sleep well knowing that the pros will only have a 2 day lead on me instead of a 7 day lead.

  • Report this Comment On May 02, 2010, at 4:18 PM, gman5556 wrote:

    TA for market timing?

    How about margin of safety for market "timing". Sure you won't get the absolute best prices. But it is a better strategy than gambling a certain stock may or may not drop 1-2% when you buy it. If you have an adequate margin of safety you will be more or less in the clear anyway.

    And GrumpyOldGuy... value analysis takes a lot longer than an hour a week. It will take at minimum 3-4 weeks of day and night research for a single company, if you choose to pick yourself. Its not necessarily about getting information a few days before everyone else, unless of course you trade on a weekly basis. Its about understanding the information effectively, not just plugging numbers into a giant spreadsheet that spits out some number.

  • Report this Comment On May 02, 2010, at 6:46 PM, Superdrol wrote:

    Carter Worth is a market technician on CNBC that used to work for Donald Lufkin and Jenerette. They were the number #1 firm back in the day. Carter used to be a fundamental analyst but not anymore.

  • Report this Comment On May 02, 2010, at 10:24 PM, FoolishJayhawk wrote:

    I'll present a few company names to you that were recommendations from TMF at some point based on fundamental analysis, FMD, AIB, WM, SAY, KKD; I think we can agree all have imploded. Back in the day, Enron was rated 5 stars by S&P and had over 15 "strong buy" recs from Wall Street fundamental analysts until the week before it went down. TA is not stupid because it doesn't suit your style or because you disagree with it. Instead, it has its place and is used almost solely in commodity, futures, and forex trading. If you think *trading* is stupid, that's one thing; but, to say TA is stupid is, well, not a particularly intelligent statement.

    --FJ

  • Report this Comment On May 03, 2010, at 9:00 AM, Pushkinator wrote:

    How is WTW a good value stock and why would you buy it using fundamental analysis? I looked at its balance sheet and I was instantly uninterested because of the assets being dwarfed by its liabilities. However, I am interested in knowing why you consider the fundamental analysis to say its a good stock and why you think it is a good value.

  • Report this Comment On May 03, 2010, at 12:49 PM, afamiii wrote:

    The majority of successful 'stock' investors use a combination of technical and fundamental analysis.

    Technical analysts use price and volume information to read market psychology around a security. Charts are one way of doing this. Technical analysis does not believe in the efficient market hypothesis, it believes that market prices are influenced by psychological factors AND institutional buying and that human psychology has patterns and that these translate into the market dynamics.

    In the old days (before there were computers to plot charts) people like Jesse Livermore combined fundamental analysis and ‘tape reading.’ To make fortunes on the market. Today people like William O’Neil continue that tradition.

    By many estimates 20% of NYSE activity is computer generated trading (using technical analysis.)

    Mr Chokkavelue should also realize that fundamental analysis (a way of perceiving reality) is not the same as value investing (a way of translating that understanding into a good investment system – i.e. high reward to risk ratio.)

    Be greedy when others are fearful; be fearful when others are greedy, is a rally call for market timing and psychological analysis. It is a pity that Buffet has not written any books on investing, because much of the way he is portrayed (buy and hold value investor) is a load of bunk.

    The Fool has introduced me to many wonderful stocks, but also more than a few dogs. Without technical analysis I would probably have been holding on to LOOP, SCSS, TBI and numerous others through their gut renching declines. Forced to replace logic with hope.

  • Report this Comment On May 04, 2010, at 12:12 PM, theHedgehog wrote:

    <i>I believe that investing is also a zero sum game;</i>

    Nice article, but once you accept the above proposition, you've moved from investor to gambler, or at best trader. It would be more accurate to say that trading is a zero-sum game, while long term investing takes advantage of economic growth.

  • Report this Comment On May 05, 2010, at 6:06 PM, themoment wrote:

    Technical Analysis Is Stupid

    DID you really say that! I have never heard of anything being called stupid that made money. I have seen some very unusual things in my life that have made money, none I would call stupid. People that live in a box that don't understand how to use things might call them stupid. But once they learn they change there opinion. When I get a expertly checked out stock pick from here, I run it through technical analysis and enter on my terms with it. It's probably why I generally don't go through much red in my portfolio. Try it for better results. :-)

  • Report this Comment On May 06, 2010, at 11:56 AM, StopLaughing wrote:

    Tech analysis has been consistently bashed by the academic community for decades. They have run hundreds of studies that find 2 things Tech analysis is worthless and the market is efficient.

    They find those 2 findings because their methods are flawed and biased in favor of creating the preferred findings.

    Tech analysis covers a lot of different approaches. Some are useful for short term trading, some for longer term. Most are abused or misused and misinterpreted.

    It is easier to have faith in Tech analysis than in Fundamental analysis that is based on Enron accounting or Greek Gov figures.

    Buffet and others claim to be Fundamental types but they really look at the business model and the industry and macro dynamics more than actual Fundamental analysis.

    I find all 3 useful: Macro analysis, Fundamental analysis and some aspects of Tech. They are all imperfect indicators. It is unwise to take any of them as concrete absolutes.

  • Report this Comment On May 06, 2010, at 12:03 PM, NoDebtNada wrote:

    I love dogma, when it makes others lose in a zero-sum game. I use fundamental analysis to determine what to buy and technical analysis when to buy & at what price to step in. Why pay 10% more for something if you don't have to ?

    Sometimes you need to be patient and sometimes a prize stock slips away (like Darden, which I missed by 5 cents and has since gained 50%). With limited funds to invest, there are however plenty of fish in the sea. I am currently monitoring some 30 quality stocks and will be happy if I only buy 5 this year.

  • Report this Comment On May 06, 2010, at 6:03 PM, RideHD wrote:

    This seems to be an article designed to spur debate -- and a successful one if so! I would offer that "stupid" is an overly harsh word to use against a trading system that is part of the daily operations of our market. There are many reasons to utilize charting data. For starters, tens of thousands of others do, and they influence market actions. When you don't understand what is going on, you are somewhat blind. Second, if you don't use technical analysis to support your fundamental research, you will pay too much and sell too late -- something MF is often criticized for outside these boards. For instance, if you like growth stocks, you are gambling if you rely purely on fundamentals. GMCR would be a decent example -- the fundamental story is still great in my opinion but many have lost a ton of paper profit by continuing to ride it out. After all, paper profits are paper profits -- the only money that counts is the money you keep...

  • Report this Comment On May 07, 2010, at 12:51 AM, topsecret10 wrote:

    The people that diss technical analysis do not understand It. I have called the last three selloffs using It. Just not too many people that pay attention to ol Topsecret... I sold EVERYTHING I owned In the stockmarket at DOW 14,000 and I did not get back In until MAY 2009. I have made about 80% on my money so far trading In and out of certain stocks and sectors. I went 30% cash two days ago,and the stocks that I am still holding I have substantial gains In. I will sell Into rallys,and look for stocks that are oversold on the TECHNICALS. I use both fundamental AND technical analysis to make my trading decisions,and the technicals have helped me to make some good calls,especially recently. The more people that do not understand or use TECHNICALS to their advantage Is a positive In the long term for me. I am a very contrarian Investor,and If you think that fundamentals explain the whole story,you are sadly mistaken. I suggest you learn more about "Technical Analysis" before you condemn It to the trash heap... TS

  • Report this Comment On May 07, 2010, at 11:36 AM, artbros wrote:

    The eerie specter of early MF philosophy rises from the grave and walks. Uber-Fools, Tom and David, roundly condemned TA as stoo-pid way back when. Occasionally foolish acolytes mount their hobby horse and spout those old preconceived notions as if they meant something.

    But what is FA but analysis of past vs future profits? It looks at ratios and compare them to industry trends on the same ratios. This very article does it.

    Anyone see a TREND here?

    The basis for both FA and TA is simple, "the trend is your friend." Wise and seasoned investors use FA and TA. The Fool would be wise to embrace TA to consider entry and exit points.

  • Report this Comment On May 07, 2010, at 9:13 PM, topsecret09 wrote:

    Artbros... Well said !! :)

  • Report this Comment On May 07, 2010, at 11:26 PM, Jacobd1970 wrote:

    I'm glad Anand Chokkavelu is right. There might be a group of technical analysts who trade stocks by studying patterns off of a hawaiian shirt.

  • Report this Comment On May 07, 2010, at 11:34 PM, Jacobd1970 wrote:

    Is it safe to say that Tech Analysts are given to high emotions? Monkey Swinging on the tree and drop kind of traders? Anyone?

  • Report this Comment On May 08, 2010, at 1:47 AM, RaptorD2 wrote:

    No wonder you don't like T/A, you're using it wrong! :)

    IMO, F/A is for grading and choosing STOCKS and T/A is for choosing ENTRY & EXIT POINTS. I could point to dozens of investors who use the two methods to their great profit, but the discussion boards are full of them so you obviously know this.

    The best investors' toolbox is one that is full of tools and T/A is a good tool in skilled hands which, unfortunately, leaves you out. :)

  • Report this Comment On May 08, 2010, at 6:48 AM, GreenPhotog wrote:

    This market correction is a good example of why technical analysis works: the majority of stocks headed south, including ones with the best fundamentals. Hang on because they are strong companies? Maybe.

    I prefer to get out of the stock, losing a little capital, when a market correction is called, and buy back in when the markets are in an uptrend. One example: MF's highly-touted Intuitive Surgical (ISRG); sure glad I got out at 270 as it's now down to around 225-230.

    When the bull market starts "running" again I can jump back in and buy ISRG at a bargain instead of waiting for it to run up 20-or-more percent just to get back to even.

    All based on a chart's distribution/accumulation days and, to be honest, Investors Business Daily calling the market correction.

  • Report this Comment On May 08, 2010, at 9:58 AM, bwernborter wrote:

    software from a british company called tradewin turned 4K into £140k in 5 years useing the fibanarchi bounce theory. WD Ghan is one of the most famous successfull traders of all time, purley technical. What about the Elliot wave thoery all proven successfull stories just to mention a few

  • Report this Comment On May 08, 2010, at 10:16 AM, wjpata wrote:

    TA is not an INVESTING tool, it is a TRADING tool. As a Technical investor I understand that the major moves of stocks are driven by institutional investment firms who have fundamental analysts working for them who know far more about fundamental analysis than I will ever know. However I do know that institutions cannot buy or sell a stock all at once and TA picks up those moves. The reason people lose money in TA is because they do not have trading rules or do not follow their trading rules. Additionally, many technical investors fail to adequately back test their systems before trading them (or over-optimize their testing which skews their results). Using TA I have made over $9K during the market meltdown this week. What corporate fundamentals could have predicted this precipitous drop? Just as with the crash in 2008, many fundamentally sound companies get pulled along with the bad companies. TA uncovers the investor psychology driving the market so that you can catch movements that baffle fundamental analysts.

    I can always tell who the FA's in a room are cause they are the ones crying the loudest when their "fundamentally sound" companies tank with the rest of the market.

  • Report this Comment On May 08, 2010, at 1:08 PM, mmcclell wrote:

    If you're not using a combination of fundamental and technical analysis you are not taking advantage of all the info available to you. Following a purely fundamental approach didn't work out too well during the 2007-2008 train wreck.

  • Report this Comment On May 08, 2010, at 3:43 PM, Odie904 wrote:

    Could technical analysis be a self fulfilling prophecy?

    If the chart says "buy" or "sell", traders do so, influencing the stock price.

  • Report this Comment On May 08, 2010, at 3:55 PM, pcb3 wrote:

    What? Not a single reference to Buton Malkiel's Random Walk Down Wallstreet?

  • Report this Comment On May 10, 2010, at 3:58 PM, jakeh25ad wrote:

    Believe in Dow Theory? Then you believe in Technical Analysis.

  • Report this Comment On May 10, 2010, at 8:52 PM, TheHeroTheDavid wrote:

    Anyone believing in Fundamental Analysis may well as believe in the Tooth Fairy!

    First of all look at the P/E ratios - 16x now, but at the same level 5350 16 months ago 11x.

    Do we have a rosier economic outlook? Think of the Euro, the budget deficit, the enormous cuts in spending/increases in taxation required, &the , necessity of increasing interest rates, leading to inflation,political risk of war with Iran, or the failure of the Euro

    The fundamentals aren't there, because all predictions are speculative, & work on very dodgy models, which ignore many variables.

    Having personally been involved with the financial accounts of very well known Blue Chips, & knowing the suppositions that are drawn on historic data are fundamentally outdated; most long term investors

    operate only with faith & goodwill...

    ...backed by that old stalwart, fear & greed.

    I swear I do fine investing solely by putting a ruler against a graph, guessing where the highs & lows will be, & investing accordingly.

    Oh, & I only invest in markets, & currencies, dripping money into a position.

    FA would be fine if nothing ever happened. But it does.

  • Report this Comment On May 11, 2010, at 2:34 PM, Shawnerz wrote:

    How did you come up that Boeing has a Debt/Equity of 607%? Total debt (from Yahoo) is 12.95B and total cast of 10.36B. Am I missing something?

  • Report this Comment On May 16, 2010, at 4:15 AM, louis581 wrote:

    I don't entirely agree with you. I have just posted the value of these to analysis in my blog Investing in Philippines(http://investinginphilippines.blogspot.com)

    Yes it is right to rely on fundamental analysis because they give you a clear picture of a company's standing and future cashflow. With that knowledge and adding technical analysis one can make a timely purchase of a company's stock when it's price is going down. The price might be going down due to temporary effects of market forces like news and reports to which the investing public react to. Good companies who stood the test of time will always be there and but the stock market has a bull-bear cycle. It never stays on one stage thus knowing when will that happen will give you an edge to maximize profits.

  • Report this Comment On November 26, 2010, at 1:17 AM, growthking wrote:

    i will try to explain this clearly. a technical analyst is only stupid when they reply ONLY on technical when buying a stock. there is nothing wrong with buying the best technical stocks with good fundamentals. i will give a brief history AAPL PCLN GOOG POT AMZN.

    check out

    http://www.finviz.com/quote.ashx?t=pot&ty=c&ta=1&amp...

    see how the fundamentals will probably classify it as a growth stock? also see the volume spike that makes the price of the stock break off? could a value investor find stocks like aapl and goog and AMZN? NO they want more large cap stocks with long established histories. so technical analyst are stupid?

    i am studying a very good investor or trader if you view it that way who calls himself a techno-fundamentalist Nicolas Darvas Not too many famous technical analyst but don't be surprised if the name Keith Brooks becomes famous. you have been warned.

  • Report this Comment On August 22, 2011, at 9:36 PM, TCNFool wrote:

    Wouldn't you want to consider what Technical Analysis is telling you with respect to timing your entry into or exit out of a stock? Fundamental Analysis can certainly identify a solid company with good growth prospects but it might be bid up and not a good time to buy it. Don't give up on any of your tools.

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