Technical Analysis

Friends,

One reason to start this blog is to share my knowledge of Technical analysis with you all so that everybody can admire the the science behind it.

There is no dearth of critics of Technical Analysis but time and again Technical Analysts have proved its importance. Having said that, I don't mean Fundamental analysis is not as effective as Technical Analysis, being an MBA myself (Olin Business School, USA) I really appreciate the results of Fundamental Analysis and strongly believe that it is the best possible way to value a firm, but the question is, does a normal investor have all the necessary data and time to evaluate a firm Fundamentally?

This is were Technical Analysis comes into picture, following are the advantages of Technical Analysis:

1) The assumption that PRICE & VOLUME discounts everything(Basis of Technical Analysis), helps us to ignore everyday news. Technical Analysis is based on the assumption that the current & past share price have all the information regarding the company.

The question is, would it be right to make such an assumption?

My answer :YES, Consider that a company ABC makes an expansion announcement, if the market believes that this is good news the share price goes up and this rise in price will be supported by high volume of shares traded. So a chartist (Technical Analyst) can clearly see the rise in price and volume on the charts, and without any information of the news comes to a conclusion that there is something positive about the stock. (Remember there are so many indicators that help you decide the right price, its not just Price and volume, but for beginners I feel this would make sense)

2)The ease of performing Technical analysis.
There are many softwares easily available in the market.

3)No need to understand the balance sheets, cash flows & Income statements.

I believe the right Investment strategy is to combine both Fundamental and Technical analysis.
But for people who have other Jobs and cant spend more than half an hour in a day to track the markets, Technical Analysis is the answer to their Investment problems.

I will try to post my analysis of the NASDAQ and DOW as regularly as possible and some particular stocks if time permits, and may be will be able to convince people that Technical Analysis does work. I am myself new to this science, have been practising it for a couple of years, and trust me though it appears to be simple initially it takes 3-4 years of practice to make you a good trader (not an expert)

Note: All these are my personal opinions and should be used for learning only, dont be stupid and make investments based on my opinions. :-)

Varun Malhotra