The how to use Technical Analysis problem…
Admittedly I am not a huge fan of Technical Analysis, I seem to have my mind firmly entrenched in the seemingly fruitful task of fundamental analysis. I can see however that Technical Analysis can have very real practical applications and should be part of my armoury as an investor. Why? Well;
-I certainly do not buy into the “efficient market hypothesis”; that market prices at any given time already contain the breaking news and developments, and likely growth, included in the price. And so thus reflect all the known data in the price, rendering any type of evaluation (fundamental or technical) as useless.
-I also think that the personal/psychological factors involved in investing, do undoubtedly involve some kind of appraisal of the past prices, etc., and so patterns must surely repeat for reasons other than being purely random. Human factors and sentiment certainly account for some strange things that I have observed occur.
The problem which arises for me occurs when I try to think about “how to use Technical Analysis”. I mean knowing something is one thing, applying it in a meaningful way is quite another.
For now in my infancy stage of my journey into investing, I am sticking to the absolute basics and using basic share charts with simple overlays of support/resistance, moving averages; Bollinger bands, and RSI. Why these? Well for no better reason, that these are the sub-tools that I understand reasonably well. Note I said reasonably.
Although it is probably safe to say, that the biggest trigger for me personally. And one that might signal a purchase or a sell, is a share that is in my portfolio or watchlist which is breaking out beyond resistance or support levels. This will certainly incite me into action (even if that action is doing more investigation).
So far as I am concerned this is just another string to a bow that I use to quantify my decisions as approximately ones that will give me a reasonable return. And as has been famously said by someone far smarter than me, it is better to be approximately correct, than precisely wrong.
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