Technical analysis, or charting, is the art and science of graphing past price movements of an asset in attempt to divine their next moves. In a world of sophisticated financial analysis and correlations between various arcane assets, charting is often dismissed as voodoo. Despite claims to the contrary, it's a dirty truth of Wall Street that everyone analyzes charts.
Fundamental analysis is much more important for the long-term. Macroeconomics, as we've seen, can make hash of a graph overnight. Charts are dispassionate and visual. They reduce the noise both in and outside of your head.
Why Use Charts?
Because sometimes they work; which is much better than most investing metrics.
Too much trading is dangerous, but paying more commission is a better deal than pointlessly hanging on for dear life when you can see a sell-off coming. Breakout viewers got a heads up last May when the S&P500 broke through it's uptrend, ultimately falling 19%. There were plenty of missteps in between but losses were always, always, limited.
Your brain will tell you whatever you want to hear in terms of holding on to a losing stock. Prices and graphs don't lie. If trends hold up, you hold or buy on the line. If they break, you sell on any close 1% below support and retreat. That's a plan; an exit strategy for trading. Once you have a way in and a way out you can try most anything you want.Read More »from How to Use Technical Analysis