Technical Analysis Software; software that gives fools more power to lose
The problem with technical analysis software and trading the markets is that every Tom, Dick and Harry, thinks that they can just buy some software press a button and the computer will miraculously spit out a winning trade. In dreams that might be true, but in reality, you are 3X more likely to lose if you think you can just memorize some patterns or buy a technical analysis software program that is going to do all the legwork for you. You don’t learn to sprint before you learn to crawl so don’t try to jump into the markets before you even understand the main driving force. On its best day Technical Analysis comes in at a distant second. So what’s the main driving force? Hold on, you are about to get the answer
Emotions drive the Markets
Technical Analysis Software does not determine what’s driving the markets, as it cannot measure emotions. The main driving force behind any market is human emotions (Greed, lust, the quest for power, etc.) and so the first thing to understand is the type of emotion that is powering the market at any given moment. Once you identify the emotion, it makes it infinitely easier to determine the Trend.
We overcame this issue with the development of the “The Trend Indicator”. Emotions and psychology go hand in hand; psychology is the study of the individual and mass psychology focuses on the crowd. As we are not dealing with personal psychological disorders, mass psychology is what we focus on. Mass psychology differs from contrarian investing. Contrarians seek to take a position that’s in opposition to that of the Masses; Mass Psychology states that you should only abandon the ship when the emotion at hand is at a boiling point. For example, the crowd is ecstatic or the crowd is hysterical and is ready to throw the baby out with the bath water.
Technical Analysis plus Mass Psychology Equates to Excellence
Technical analysis, when used properly, can help identify market tops and bottoms; it does not predict the price date of the event but can be used to determine topping or bottoming action. However, if you identify the emotion driving the market, then you will be in a position to get out at a much better entry point. Markets tend to top when the crowd is Euphoric and they bottom when the masses are stampeding.
Technical Analysis In lay Man’s Terms
The fundamental analyst would go to a fast food place and study how fast and how efficiently the place handled each order, and he would also analyse the number of people who came into that location on a given day before deciding on whether he should buy it or not. A technician would only sit outside and study the people shopping there, he would not care what the cost of the product was or how many were sold, he would be looking for specific patterns and based on past analysis would use this data to determine whether he should buy or not.
You can turbocharge your result by technical analysis with contrarian investing and Mass psychology, something that is done very professionally at Tactical Investor
Now let’s look at some of the most popular technical analysis tools. We will examine them all, so please drop by here as we update this page. This is a work in progress. We are also going to provide a source for some of the best technical analysis tools and will list this all on one page.
Relative Strength Index
It was developed by Welles Wilder and described in detail in a book he published in 1978 called “new Concepts in technical trading. It is a momentum based oscillator that measures the magnitude of stocks upwards moves over a given period against the magnitude of losses over that same period. The standard value is usually 14, but one can set it anywhere from 0 to 100. The value is calculated by using the last 14 periods.
It stands for moving average convergence/Divergence and was created by Gerald Appel. It is a trend indicator that follows the relationship between two moving averages; these values are usually preset at 26 and 12. It is calculated by subtracting the 26 days moving an average of a given stock, index, etc. from its 12 days moving average. It is used to determine buy and sell points in a given security.
Other Popular Technical Analysis Software Tools
The idea is to find several indicators that you feel comfortable working with. The next step is to customise them as opposed to using the standard settings. There are services out there; that can do this for a small charge. After that, you analyse chart, after chart, until you have a thorough understanding of how these tools work. Practice makes perfect.
Once you get a handle on Mass psychology, there is no need to buy any software; there are many sites that provide one with the ability to customise the charts for free. One such place is bigcharts.com and it’s quite easy to master. In short, understand what drives the markets, and then spend some time mastering 3-4 technical analysis tools. There is absolutely no need to spend thousands on purchasing any technical analysis software. Some companies sell the software for a relatively low price but hammer you when it comes to purchasing data
Other articles of interest:
Is The U.S.A Still A Super Power? (Oct 25)
China; A Great Time To Buy (Oct 25)
Dollar Bull Still In Play (Oct 24)
Gold Approaching Critical Juncture (Sept 30)
A New Era In Trading (Jan 25, 2014