Comments on: Technical Analysis – What is it?

By: Chuck

Chuck — Sat, 17 Jan 2009 02:02:09 +0000

Stressed out…

Technical analysis can be applied to any equity or commodity that can be viewed on a chart. The fundamentals are different between equities and commodities, but chart reading using technical analysis principals remains the same.

By: Stressed_out_student

Stressed_out_student — Fri, 16 Jan 2009 18:35:37 +0000

I have another question. I’m interested in trading energy commodities and I wonder if there are any important specifications to technical analysis when it comes to trading energy. I’d figure that it makes a difference concerning the usage of technical analysis whether I’m trading stocks or futures. Could you help me on this one?

By: Al

Al — Wed, 07 Jan 2009 17:10:15 +0000

Chuck,
…similar concern with a different angle. If technicians use the T/A principles which are derived from the historical markets data and suddenly we have a shift in participants behavior or a new participant with huge resources enters the market with a purpose of manipulating it (and on top of that participant has the knowledge of the T/A principles) I think that the value of T/A as a tool to increase the return is greatly diminished.

By: Tom

Tom — Wed, 07 Jan 2009 16:31:11 +0000

Most excellent description there Chuck. You NEED to be writing books to help us saps out here!

By: Chuck

Chuck — Wed, 07 Jan 2009 14:18:48 +0000

wsquared..

I think I know how to answer your question now. It is the ‘combined’ psychology of all market participants that makes up T/A. The ratio of those who only practice fundamental analysis vs T/A is lost in the charts as the charts do not discriminate between the two.

And it is the combined psychology that matters most.

By: wsquared

wsquared — Wed, 07 Jan 2009 14:15:11 +0000

I ask these questions in the context of using TA.
If there is a relatively stable number of fundamental traders and a relatively stable number of TA traders, my expectation is that the number of fundamental traders far outnumbers the number of TA traders.
This would be the desired state of affairs.
What are the ramifications for TA if the bulk of the traders that have exited the markets are fundamental traders. How does it impact TA if we find ourselves in the position of quantitatively trending ourselves more and the unsuspecting crowd less. Wouldn’t this tend to make the trend less stable, and more volatile?

By: Chuck

Chuck — Wed, 07 Jan 2009 13:50:46 +0000

More volume (participants) is always better. When a market trades thinly it makes reading the group psychology more difficult.

Your other questions are more difficult to answer. To know how many people are in the market and how many are sitting on the sidelines is not something easily known. All we can do is use ‘average’ volume levels in a market (or stock) to gauge current activity vs previous activity.

By: VT Tim

VT Tim — Wed, 07 Jan 2009 13:48:51 +0000

Chuck: A very interesting and revealing summary of your (and maybe someday my) craft. I’ve bought some courses and read what I can get my hands on and this is all beginning to make some sense. Thanks for taking the time to impart your knowledge.

By: wsquared

wsquared — Wed, 07 Jan 2009 12:50:03 +0000

I have a question. When does TA work best. When there is a low number of market participants or when there is a high number of participants.
My gut tells me one wants as many participants as possible. This makes the up, down, or trading trend more stable. This would be akin to crowd phsycology validating the trend. The trend is more stable if 100 people are selling, as opposed to one person selling.
How does todays market participation rate compare to a year ago or two years ago.
Is there a ratio of Fundemental traders to TA traders on any given day. What happens if the amount of TA traders becomes a disproportionately high amount of the total market participant number. Is that possible?
How many people are “In the market” today vs. the total number of participants available both in and out of the market, sitting on the sidelines waiting for some sense of direction?