Mainly what it isn't
What is technical analysis?
When I first started off learning TA, I thought it was ‘technical’. There is nothing technical about it. Technical tends to mean something very complex. It’s not that. TA is a strange two words. Actually, there is little in the way of analysis with pen and paper. Basically you use your eyes. That’s it. You won’t find any charts or descriptions of indicators in this post.
Novices – and I was one – tend to think that it’s about a bunch of indicators, that will some how say which way a market is likely to move. Success in trading has little to do with indicators.
So this is a distillate of what I think and have discovered about TA. Indicators are used only to give an estimate on sentiment in the market. Sentiment is about emotions and feelings of large numbers of people. It may sound strange, because indicators can’t say what their emotions are. In trading language there are two main sentiments: a) Bullish and b) Bearish – and these are dependent on time frame i.e. whether you’re looking at a 5 min chart of a 1D chart. The power of the sentiment may be discovered using one or more indicators.
TA can also tell about when a market is losing or gaining steam. Again, it’s not about the indicators themselves. It is about experience in understanding the information that indicators give.
TA is not about ‘reality’. Rather it is about fantasy. It is about emotions of hope, greed, fear and anxiety. These drive markets beyond ‘reality’. This has never been better demonstrated that in recent moves on the Dow Jones Industrial index (aka Wall Street) – which is followed by several other world stock indices. The DJI made a terrible crash south by 40 percent in about 2 weeks. Then it rebounded madly through the worst part of the COVID-19 assault on America (and other countries). Fear in a hyper inflated market caused the market to be toppled. Ridiculous levels of unemployment, trade wars and political uncertainty did not stop the market from rebounding north. The rebound was driven by hope, greed and fear. Greed was fuelled by the Federal Reserve loosening up monetary policy (and lots of other things). In essence the fundamental value of the market (and it’s stocks) did not matter. Realists like myself stood in disbelief – so powerful was the disconnect between sentiment and reality.
TA is not going to help any new trader to be successful.
Experience in the markets using TA is the greater value.
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