M. Jordan stands at half-court and hurls a basketball toward the net, it goes in. That is skill, practice, knowledge, wisdom, self-assurance, professionalism, to name a few winning adjectives, duplicated with accuracy and dependability over time. MJ wins a small fortune.

It can be done.

One percent (1%) of the world’s population are millionares, or roughly 67 million rich dudes and dudettes out there whooping it up (albeit probably a bit less these days). I would bet that even 1/2% of that 1% has, and currently does, takes profits CONSISTENTLY with the aid of some form of technical analysis.

People seem to forget that technical analysis is everywhere, and, sorry to say, lays hand-in-hand with fundamentals. TA is merely a visual representation of the underlying numbers. Ever use a pie chart? Or sine wave? Fractal? Video game? No? Lucky fundamentalists.

The world of business is fundamentally about selling stuff and making money; technically it’s all about the numbers = it’s BOTH!

For the record, I personally knew a man who operated his own investment company. He and his partner had a few hundred clients. He was very successful. The MAJORITY of his work was based upon technical analysis, leaning heavily on the simple ‘R-squared’.

Numbers doesn’t lie, people (CEO’s) do. Unfortunately, it’s people who produce and manipulate the numbers. So, yeah, it’s tricky. There is no silver bullet. Basically, use whatever works for you, use what makes you successful. But don’t discount something merely because of your beliefs.

Technical analysis has but one true merit. It is wonderful record of PAST history, nothing more.

There is no possible way to know a company 100%, inside and out. The best you can do is use every tool available to you to try and ascertain if said company is a good buy/sell for you.

What I don’t understand is why people would reject technical analysis simply because it is technical analysis. It must have some merit and value in the realm of making money or it wouldn’t be used at all.

I believe, and I may be mistaken, but didn’t Jesse Livermore start his great investment career (at age 15) by taking note of patterns in price movement — a technical analysis device? I’m sure if TA was good enough for ol’ Jesse to use, it’s good enough for all of us non-multi-millionaire types.

But, whatever, each to their own.

Although I’m not a huge supporter of technical analysis I have to disagree that the downside is that:

“These strategies do not offer *any* protection of your initial invested capital”.

Are you suggesting that only PPNs, GICs, and CDs are the only good longer term strategies? because from what I understand, they’re the only investments that actually have no principal risk (aside from inflation). Selecting equities based on fundamentals analysis also offer zero ‘protection’ to the initial invested capital.

Also,

“Statistically some will make money using technical analysis more often than not” – doesn’t this actually mean it IS a winning strategy?

I do absolutely agree with your warning – just like any other strategy, you do need a good level of understanding before venturing into voodoo.

These strategies do not offer *any* protection of your initial invested capital. You may end up making some money short term, or day-trading, but longer term all you need is one unexpected market correction, and poof, you’ve lost those potential gains and original capital.

Statistically some will make money using technical analysis more often than not. But its my oppinion that if it was possible to average the returns of all technical analysis followers they would be at a 0-gain (or more likely negative, especially taking into account commissions).

To all potential technical analysis investors…aka expert fininancial historians. Beware.

Despite his dubious stock picks, Cramer’s saying “buy and homework, not buy and hold” is good advice whether it be from the technical or fundamental perspective.

There is Fundamental analysis and Technical analysis.

To do well in investing, you need both. Both are used because both work, independently, cooperatively, and sometimes not at all.

The best example I can think of is the Nobel Prize winning Black-Scholes model (est. 1973). This “math problem” (based upon Japanese rocket science) was so good at predicting the future price of options that it was programmed into the computers that all the traders were using. And it worked like a charm. That is, right up until Oct. ‘87. It had no idea what was going on and was spitting out garbage; it had become useless.

Always remember, no system works forever! Use both because each will give you answers the other cannot.

@ Paula: “It [technical analysis] doesn’t explain why things happen and without knowing why you can’t make informed decisions.”

The Market doesn’t care WHY things happen, it only cares about Truth and Equilibrium. A chart is merely the EKG.

As for people having to know WHY before they make “informed” decisions…that’s usually NOT how life works. Firstly, if you are driving along and a cop car pulls up behind you, lights and sirens blazing, what do you do? You probably pull over. Why? Because that’s what you have been “educated” to do. It doesn’t matter if YOU know the reason the cop is stopping you, you may in fact not have a clue, yet you still pull over. People do all kinds of things without knowing why; you would never give one faux copper penny if you need to be provided with certainty in Investment XYZ beforehand. Secondly, see my comments about Citi below. There are many uninformed people who make a lot of money merely going with the flow (ie the trend is your friend!).

@ Paula: “I’d be curious to see what the technical analysis said before the credit crisis, Dot-com implosion, or any of the other tanking stocks out there that took investors by surprise.”

It said the dot.com was unsustainable/unsupportable merely by the pitch of it’s ascent. Go look at the late-’90’s Nasdaq chart. Does THAT look like it has any type of support, anywhere? No. On the other hand, public sentiment (aka mania — remember the uninformed investor?) said the .com revolution would never end and there was a “new economy” here and now. Obviously fundamentals and technicals diverged on that one in a big way.

Market returned to Truth and Equilibrium.

On the other hand is the credit crisis. Techs told you nothing. Fundamentals would have told you something…if they weren’t fraudulent fundamentals. But most intelligent people knew something was far from right and dark days were ahead.

Market is currently returning to Truth and Equilibrium.

Get the point?

Then there is utter absurdities that neither fundamentals nor techs support. Such is the case of Citi (NYSE: C). Fundamentally it is a bankrupt business; technically it collapsed 96% in less than one year. Would you invest in that company? I wouldn’t. Then a few months after going bankrupt, the fundamentals state it is now a profitable company; the techs record a price eruption. Neither fundamentals nor technicals are at Truth or Equilibrium in this case.

[I know a person who DID buy the Citi lie at $1, knowing full well he was buying the lie, and sold the lie at $3. He made a good whack o' cash (+200% profit) in a couple of days. Good for him. I, however, don't like to support fraudulence, at any level, even if it would have made me richer. Call me stupid, call me naive, call me Ishmael...]

Never forget, technically, ALL investing is based upon fundamental human nature. Make of that what you will.

Some time ago we’ve had a “technical” discussion (see http://www.milliondollarjourney.com/how-i-lost-200k-without-losing-any-sleep.htm, post 14). I’ve predicted that NASDAQ Index will touch 1,200 – 1,300 level and it will be the bottom. At that time index was 1,800. Five (!) month later index touched 1,265 and it is the bottom so far. I didn’t have a crystal ball, just chart told me so. Believe me, everyone who can read the charts knew it… Everyone who can read the charts took profit before dot-com bubble was over. Only investors who refused to accept chart’s warnings were taken by “surprise” and lost the money. I can give you hundreds of examples… Citigroup… Technically, you had to dump this stock after Nov, 2007(!) and wait. Why people still buying? Based on what? They are just hoping…

PS – I suffer from grammar-correcting-itis – it’s ‘pique your curiosity’, not ‘peak’