Page 92 - THE MARKET WHISPERER

90 PART 3 - Market Analysis Fundamentals

of equipment. Both words merged into one phrase seem to cause strong
trepidation.

In fact, the field of technical analysis is far from these images. Yes, it has
to be learned, just as any profession must be. Technical analysis, in fact,
is simple to understand and easy to apply, especially in the area of day
trading which requires only the fundamental tool that technical analysis
offers. More importantly, technical analysis does not only relate to dry
analysis and comprehension, but actually offers a practical method for
stock trading.

So What Is Technical Analysis?

• Technical analysis is a review of graphs showing the behavior of a
financial product for the purpose of forecasting future price trends

• Technical analysis focuses on price: i.e., the outcome of the totality of
insights of all factors operating in the market

• Technical analysis takes no interest in the reasons for any given price

The technical trader’s three basic premises are:
1. The change in price embodies all market forces. In other words, the stock

price expresses everything that can impact the price as far as economics,
psychology, politics, etc. Therefore, all that is needed is to follow the
price, which reflects changes in supply and demand.
2. Prices move in trends. Trends are cyclical and therefore generally allow
predicting their direction.
3. History repeats itself. For more than a century, technical analysts have been
assisted by graphs plotting stock trends. Accrued information allows
identifying recurring behavior patterns. Technical analysts believe that
in certain situations the public’s emotional reaction can be expected,
and therefore the analysts presume that based on past history, future
movements can be predicted.
Technical analysis alone will lead you to certain failure. Even if you
study all the books ever written on the subject and can quote them by
heart, and were you to write software that operates according to their
doctrines, you’d still fail.
At the most, 10% of technical analysis components actually work, but
not in a vacuum. If you know which of those components to isolate from
all those available, and how to integrate them with other components
unrelated to technical analysis, you have a good chance of succeeding. But
remember, the recipe for success merges experience and art.