Skip to main content

Leigh Drogen on technical analysis

Leigh Drogen, who you may know from the Stocktwits stream and Stocktwits TV, has a nice post up at his blog on the utility of technical analysis. Here's a bite:

"
Joe Retail Investor: But isn’t technical analysis just a religion, it’s one of those things that only works if everyone thinks it’s real. Is there anything real about technical analysis, I know when a company is cheap, can you tell when a stock is cheap based on the technicals?

Leigh
: Well, no, that’s not really the point of technical analysis, and no, technical analysis isn’t just a religion. Here’s what technical analysis is. Because people are the ones buying and selling assets in the market, or writing the algorithms which buy and sell assets for them, asset prices will always be subject to the fallibility of human emotions.

Certain emotions in the market represent themselves by certain price and volume patterns, the same patterns have existed since the beginning of the market, and they will exist until the market is gone. Why? Because human emotions don’t change, the name of stocks change, the fundamentals of companies change, but human emotions never will, and the chart is the representation of that emotion..."

Check out the full post, I think Leigh has done a nice job of addressing the back and forth that occurs on this subject between TA practitioners and those who decry technical analysis.

Popular posts from this blog

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets. For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever" .

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and...