Technical Analysis of Trends: Cracking the code

Technical Analysis of Trends

Technical analysis of Trends: The Trend Is Your Friend 

Updated April  2023

Regarding analysis, stock trends via both Technical & Fundamental Analysis fall short. Individuals have been led to believe that to succeed in the markets, they should embrace mechanical systems (Technical analysis) or fundamental analysis. No matter how hard you look, you will not find an answer if the premise is wrong.  (Mainstream) Technical analysis is based on a fixed set of rules and, in that sense, does not differ much from Fundamental analysis.

Fundamental data is provided in a standard format, so anyone accessing that data will arrive at the same conclusion.  The same applies to technical analysis based on a fixed set of rules.  The only way to win is to see things that most people will not see, so anything standardised will not work.  The mass mindset wants to feel safe and deems there is safety in numbers, but there is only danger when it comes to the markets.

Engaging Read: Technical Analysis Of Stocks And Commodities

Stock Trends and Mass Psychology

The following excerpts from past Market Update issues (our premium service) illustrate the principles of Mass Psychology in action.

Now everyone is expecting a strong move, and what they might get is a minor pullback. Market update May 7, 2019

Even if the Dow were to trade to the 24,500 range or slightly below that level, the move would be slight compared to the correction the Dow experienced towards the end of last year.  And it would appear insignificant if one goes back to 2015. It is essential for one to pay attention to the tree, but one should not forget that the tree is part of the forest. The media and the experts love to focus on one without looking at the other, as this helps support their false storyline.  For the record, this market will crash one day, though the word crash is over-abused if one takes the forest perspective.  In the long run, there is no such thing as a crash; that word should be replaced with opportunity. In the short term, there are crashes, but if one focuses on one timeline, it would be best to call it quits right now.  One needs a multi-timeline approach; in layman’s terms, it means looking at the market from multiple timelinesMarket Update May 20, 2019

The favoured downside target would fall in the 25,400-25,550 range. As V readings are extremely high, there is always the potential for an overshoot, as shown in the above chart.  Market Update April 13, 2019

Understating the markets, therefore, comes down to one factor: “emotion”.  Market Update May 12, 2019

How paradoxes play into the Technical analysis of  trends

This brings the theory of paradoxes to mind, which states that one will get exactly the opposite of what one chases.  At any given time in the markets, the masses are always on the receiving end of the stick.  Another name for the masses is “cannon fodder“.  Those ruled by the mass mindset have only one function: to be milked like cows.

Technical analysis of stock trends is usually based on Mechanical In Nature systems.

The word mechanical already informs you that, at some point, the system will fail; to succeed in the market, you need adaptive systems, which can only come about if you add Mass psychology to your methodology.

” One of the definitions by Merriam’s Webster online dictionary for the word Mechanical is “done as if by machine: seemingly uninfluenced by the mind or emotions.”

Technical analysis of trends is usually based on Mechanical systems

Pay attention to the keywords influenced by the mind or emotions, and that vital data informs you that these systems will fail.  Once feelings start to make the talking, money does the walking.

The market is nothing but a cesspool of the worst human emotions out there, so using a system that is based on rules invented by the mind of one of these insane persons is not the smartest route to take. As stated, the market is a cesspool of emotions; lust, greed, power, hate, fear, etc., swirling through the markets like a hurricane. Therefore you need to understand the feeling driving the market; understand the emotion, and come one step closer to identifying the trend. Again, every system needs to incorporate an element of psychology, and you are dealing with human emotions and not mechanical computers.

By default, a mechanical trading system has to fail; all mechanical objects eventually break down or fall apart.  It is interesting to note the choice of words marketers use to push their systems out, and despite seeing this data, the masses embrace these systems as if they are the holy grail.  It’s almost as if we have t a secret programmed desire to lose syndrome ingrained deep in our psyches.

Technical analysis of trends:  Remember is the trend is your friend 

Technical Analysis and Fundamental Analysis can’t detect emotions, so we don’t understand why the experts focus on either one only.  The study of crowds is essential to gain the upper hand in the stock markets.

Look at the words investors use to define sentiment; Bullish and bearish.  These are two of the most stupid, dumbest, most irrational and easily angered animals, yet they aptly describe the mass mindset. Let’s take it further; individuals infatuated with one sector invent repulsive names to separate themselves from the pack. One example is “Gold bugs”. Why not Gold Dolphins or Gold Gods? Most humans react adversely to bugs; the first thought that springs to mind is to crush them.

A Fascinating Read:  Does Technical Analysis Work? Unveiling The Truth

The language used in the markets is also very revealing.

Scalp, plunge, upthrust, perfect bottom, down thrust, flip, climactic sell-off, etc. Adding insult to injury, the masses are happy to pass this rubbish to the next generation. Hence no one learns anything, and they are doomed to repeat history. Is it any wonder that we keep repeating the previous generation’s mistakes but do so more grandiosely? The masses always fear stock market crashes and or severe stock market corrections. They fail to understand that it’s time to jump up for Joy when the masses are scared.

Just look at the speculative phase we have entered now, and it makes all the mistakes our ancestors made pale in comparison. We leverage ourselves to our necks with debt to buy goods we don’t need and use the money we don’t have to pay for them; the real estate bubble is one classic example of madness and history repeating itself on a gigantic scale. Individuals take home equity loans against the rising values of their homes and use this to finance their extravagant lifestyles. Is there anything more insane than taking credit to buy something more on credit?

How to master Technical analysis

The way to master Technical analysis of stock trends is first to understand who your enemy is.  Your enemy is your emotion; once you know that, you can focus on studying the masses. How can you use a tool if you don’t know what to use it for?  Once you can spot the emotion driving the masses, you can start allocating time to mastering 2-4 technical analysis tools.  Adjust the settings of the tools and look for patterns that catch your eye. Don’t follow the nonsense laid out in textbooks. Identify your patterns, which will separate you from the masses. 

Each person should see something different when it comes to Technical Analysis. Invest time in identifying indicators that speak out to you and then spend time mastering them.

To a great extent, mechanical systems are reflective of our lifestyle.  People prefer to work in groups and have a fixed schedule, as in a 9-5 job, better known as the race to the bottom. You work hard, and you get hardly any time off. Your reward for giving up the best years of your life, in general, is a pension that can barely support you; take a look around; America is in the midst of a massive pension crisis.

 A mechanical system fits perfectly into the lifestyle of the dumbed-down masses;

They want to master Technical analysis of stock trends without lifting a finger. They want everything handed down to them, and they scream like spoilt brats when slammed to the ground. Well, guess what? There is no free lunch; if it’s free, it is usually tainted with toxic matter. The early bird gets the worm, and the late bird gets the bullet.

History is replete with mistakes, and the masses seem to pay no heed to account; they seem determined to repeat the same mistakes but on a grandiose scale. There is nothing wrong with making a mistake because you might learn something; perpetuating someone else’s mistakes provides no clues for improvement but only rules for self-destruction.

Technical analysis can be used to improve your  Trading results. 

If you want to spot the right trends, then at the very least, you should customise the settings on your tools. Technical analysis of stock trends can’t be conducted accurately if one is going to rely on standardised settings.  Every Tom, Dick and Harry use those settings, so if you use the same ones, don’t expect a different outcome because there will be none. Doing the same thing repeatedly and expecting a different result is called madness.

One of the simplest and most efficient tools that can be used to improve your  Technical analysis of stock trends is something called Trend Analysis. All you do is spot a new trend and stay on board till the trend ends. Trend analysis involves drawing simple lines; it takes practice but is worth the effort.  However, do not rely only on trend analysis as it has its limitation, and we cover that in the article “the limitations of trend analysis“. To address the limitations of many technical analysis tools, we developed the trend indicator, the ultimate “Technical analysis of stock trends indicator.”

Key factors to master to improve your Technical analysis Skills

You need to understand that emotions drive the markets; Identify the emotion that is driving the markets, and you stand to profit handsomely. You should be able to differentiate between Contrarian investing and investing based on the principles of Mass Psychology 

Contrarian investing is a straightforward system

It involves taking a position against the masses. Mass psychology focuses on the intensity of the emotion. Whereas the contrarian would take an opposing position the moment the masses jumped on board the investment, the mass psychology player would focus on the intensity of the emotion.  A student of mass psychology will only abandon the investment after the bandwagon is almost about to buckle under its weight.  In other words, the masses need to be euphoric, and this is why we at the  Tactical Investor have been on the right side, one of the most hated bull stock markets of all time.

Patience and discipline are key concepts you need to master to succeed in the long run. Sometimes you might have to wait for months before taking a position; simultaneously, you could find a winning play the next day.

Because the last concept is listed last, it should not dwindle its relevance; the crucial idea of portfolio management must be understood. We cover that topic in detail in this article, Portfolio management suggestions.

Originally written on April 8, 2017,  this piece has been regularly updated over the years, with the most recent update occurring in April 2023.


Q: What are the limitations of using Technical Analysis of Stock Trends?

A: Technical analysis alone falls short as it doesn’t consider fundamental factors or the influence of mass psychology.

Q: How does mass psychology affect stock trends?

A: Mass psychology drives market trends, and understanding the emotions behind the masses can help identify profitable opportunities.

Q: Why do mechanical systems in technical analysis have limitations?

A: Mechanical systems lack adaptability and fail to consider the ever-changing nature of markets influenced by human emotions.

Q: How can Technical Analysis be improved?

A: Customizing analysis tools and settings, such as trend analysis, can enhance technical analysis accuracy and results.

Q: What are key factors to master for better technical analysis skills?

A: Understanding market emotions, differentiating between contrarian and mass psychology investing, and practising patience and discipline are crucial for success.

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