One of the BloggingStocks editors recently instant messaged me and said, "You know, I think technical analysis is bull." I've heard this opinion very frequently, and I've even held this opinion in the past. But from watching stocks for several years I've seen certain price moves that seem to occur again and again. Sure enough, these movements are some of the most fundamental elements of technical analysis; for example, support, resistance, uptrend, etc. I've seen many people who don't know any technical analysis but reference a stock's breakout on its "graph" -- just from watching stocks trade, they have realized this is often a sign of future profits to come.

As I began studying technical analysis more frequently, I learned more about the skill -- moving averages, indicators, oscillators, and so on. Many of these tools, in my opinion, do in fact have predictive value in the stock market. More importantly, these tools allow traders to more effectively and systematically (therefore, less emotionally) manage their money.

All this being said, I think the editor was right in one regard -- I have a lot of trouble believing in patterns (e.g., "Head and Shoulders") because I think that many of these are way too objective when it comes to trading. I also find that they are harder to explain than many other tenets of technical analysis, such as support and resistance.

I've been on all sides of the technical analysis argument -- extraordinarily against, emotionally for, and everything in between. As it stands now, I feel like it's just another tool in the toolbox for a trader and there's no reason not to consider it.

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'You know, I think technical analysis is bull' originally appeared on BloggingStocks on Sun, 05 Aug 2007 11:10:00 EST. Please see our terms for use of feeds.