Is Technical Analysis For Real?
I used to believe in technical analysis. It went against the mainstream, it was easy to implement, and it had strong, compelling arguments to support its validity. Or so I thought. For example, if Stock A is selling for $8 on Monday and goes up to $12 by Wednesday, many investors will regret not having purchased the stock for $8. If the stock price drops back down to $8 by Friday, all those investors who didn't invest the first time around will leap at the second chance to buy. The $8 becomes the floor for the stock.
In theory, I wouldn't have to know anything about the fundamentals of a company to trade its stock. (Investing would require a combination of technical and fundamental analysis, but I digress.)
After a while, I became frustrated with technical analysis because I never knew where to draw the lines. My floor may not be the next person's floor. It all seemed so arbitrary to me. And within a year of trying to master this approach, I abandoned it in favor of fundamental analysis...
...until now when suddenly, technical analysis is cropping up again. If everyone believes the economy is humming, plan for a recession! And with the economy hobbling along, maybe the Dow will reach 14,000! Just go against the grain!
So how valid is technical analysis? Can it stand alone or does it need fundamental analysis to be of any use?