Saturday, May 14, 2011

Why I dislike TA...

After years of studying technical analysis, I've decided I just don't find it all that useful. Trendlines are more valuable in hindsight. Here is a current case in point:

Small caps are looking good right now!!!

Small caps are looking bad!!! :(

So my point is, you just don't know which to believe.  Another thing I read a lot about is negative divergences. The problem with those is that they can go on indefinitely so long as there is liquidity flowing into the market.  Then you have positive divergences which also look great in hindsight. But in real time, who's to say the stock is done going down? Here is SPY back in summer 2008 during a pullback before the crash later in the year

Here's a positive divergence...13/34 ema's are still positive (barely)... So, Buy!

But then the S&P went on to lose another 100 pts before it bounced.  At that point you're extremely underwater.

Why am I posting this little rant?  Well, for one I'm bored.  But I'm also justifying why I need a system to guide me. TA by itself is just too subjective.  I used to spend hours researching, chart studying, blog reading, etc. I was addicted to the market.  With my system, there is no need for any of that anymore! It's great... I can just look at my output around 3:45pm (although I usually look at it a couple times a day to update my page), place some trades at 3:59 then move on with my life for the next 24 hours. I can't tell you how much this has improved my family life! :)  Ok with that off my chest, see ya Monday.


  1. You are so right on the money. Thanks for your blog!

  2. Not a little rant, a big one. And a true one. A signal generator is black and white. Any pattern-reading technique must, by its nature, be partly subjective.

  3. I wont blame TA :-) I would rather blame the volatility of small caps

  4. Lena, it is my full intention of harnessing the volatility of small caps to make me a small fortune! Therefore, I can not join you in blaming it. ;)