Should I buy today?

What will prices be tomorrow, next week, or next year? Wouldn't investing be easy if we knew the answers to these seemingly simple questions? Alas, if you are reading this book in the hope that technical analysis has the answers to these questions, I'm afraid I have to disappoint you early--it doesn't.

However, if you are reading this book with the hope that technical analysis will improve your investing, I have good news--it will!

The term "technical analysis" is a complicated sounding name for a very basic approach to investing.

Simply put, technical analysis is the study of prices, with charts being the primary tool. The roots of modern-day technical analysis stem from the Dow Theory, developed around by Charles Dow. And of course, the widely followed Dow Jones Industrial Average is a direct offspring of the Dow Theory.

Charles Dow's contribution to modern-day technical analysis cannot be understated. His focus on the basics of security price movement gave rise to a completely new method of analyzing the markets. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations.

If he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans are not easily quantifiable nor predictable.

This fact alone will keep any mechanical trading system from working consistently. Because humans are involved, I am sure that much of the world's investment decisions are based on irrelevant criteria. Our relationships with our family, our neighbors, our employer, the traffic, our income, and our previous success and failures, all influence our confidence, expectations, and decisions.

Security prices are determined by money managers and home managers, students and strikers, doctors and dog catchers, lawyers and landscapers, and the wealthy and the wanting. This breadth of market participants guarantees an element of unpredictability and excitement.

If we were all totally logical and could separate our emotions from our investment decisions, then, fundamental analysis the determination of price based on future earningswould work magnificently. And since we would all have the same completely logical expectations, prices would only change when quarterly reports or relevant news was released.

Investors would seek "overlooked" fundamental data in an effort to find undervalued securities. The hotly debated "efficient market theory" states that security prices represent everything that is known about the security at a given moment.

This theory concludes that it is impossible fft forex indicator forecast prices, since prices already birkenstock uk promo code everything that is currently known about the security. If prices are based on investor expectations, commodity futures trading commission attorney knowing what a security should sell for i.

That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of godaddy park domain earn money stock's australian stock market chart earnings that the average investor cannot disprove.

Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. This is done by comparing current price action i. The devout technician might define this process as the fact that history repeats itself while others would suffice to say that we should learn from the past. In my experience, only a minority of technicians can consistently and accurately determine future prices.

However, even if you are unable to accurately forecast prices, technical analysis can be used to consistently reduce your risks and improve your profits. The best analogy I can find on how technical analysis can improve your investing is a roulette wheel. I use this analogy with reservation, as gamblers have very little control when compared to investors although considering the actions of many investors, gambling may be a very appropriate analogy.

A casino makes money on a roulette wheel, not by knowing what number will come up next, but by slightly improving their odds with the addition of a "0" and " Similarly, when an karachi stock exchange gold rates purchases a security, he doesn't know that its price will rise.

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But if he buys a stock when it is in a rising trend, after a minor sell off, and when interest rates are falling, black scholes option pricing volatility will have improved his odds of making a profit. That's not gambling--it's intelligence. Yet many investors buy securities without attempting to control the odds. Contrary to popular belief, you do not need to know what a security's price will be in the future to make money.

Your goal should simply be to improve the odds of making profitable trades. Even if your analysis is as simple as determining the long- intermediate- and short-term trends of the security, you will have gained an edge that you would not have without technical fft forex indicator. Consider the chart of Merck in Figure 1 where the trend is obviously down and there is no sign of a reversal. While the company may have great earnings prospects and fundamentals, it just doesn't make sense to buy the security until there is some technical evidence in the price that this trend is changing.

If we accept the fact that human emotions and expectations play a role in security pricing, we should also admit that our emotions play a role in our decision making.

Many investors try to remove their emotions from their investing by using computers to make decisions for them. The concept of a "HAL," the intelligent computer in the movieis appealing. Mechanical trading systems can help us remove our emotions from our decisions. Computer testing is also useful to determine what has happened historically under various conditions and to help us optimize our trading techniques. Yet since we are analyzing a less than logical subject human emotions and expectationswe must be careful that our mechanical systems don't mislead us into thinking that we are analyzing a logical entity.

That is not to say that computers aren't wonderful technical analysis tools--they are indispensable. In my totally biased opinion, technical analysis software has done more to level the playing field for the average investor than any other non-regulatory event.

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But as a provider of technical analysis tools, I caution you not to let the software lull you into believing markets are as logical and predictable as the computer you use to analyze them.

Please enable JavaScript to view this page content properly. Dogs of the Dow. Technical Analysis from A to Z.

Some history The term "technical analysis" is a complicated sounding name for a very basic approach to investing. The human element The price of a security represents a consensus. Fundamental analysis If we were all totally logical and could separate our emotions from our investment decisions, then, fundamental analysis the determination of price based on future earningswould work magnificently. The future can be found in the past If prices are based on investor expectations, then knowing what a security should sell for i.

The roulette wheel In my experience, only a minority of technicians can consistently and accurately determine future prices. Figure 1 Automated trading If we accept the fact that human emotions and expectations play a role in security pricing, we should also admit that our emotions play a role in our decision making. Preface Introduction Gratitude Terminology To Learn More. Bibliography About the Author.