Gold Futures Chart

Stock Trading - Not Only About Technical Analysis

Gold Futures Chart It seems that these days most stock traders and even those who consider themselves investors, although this is pretty much the same as being a long term trader, use technical analysis to make their trading decisions. At least, this is so among the retail traders whose population has skyrocketed in the last few years owing to the convenience of online trading.

This, I believe, has a lot to do with the fact that technical analysis has been made particularly easy to study with the widespread use of computers. While in the not so distant past, only some 20-30 years ago, those relying on technical analysis would often have to draw their own charts or subscribe to paid for chart services, these days this task is done exclusively by computers and the data is often free. The paid for charting services are practically a thing of the past.

With the widespread use of computers, it has been very easy to produce countless indicators that are meant to indicate bullish, bearish or simply neutral circumstances in the life of every stock, futures, or any other financial instrument, one can possibly be interested in. But since so much work in this area has been done already and most of it is available to the public at large, often freely, one can wonder if the use of such indicators can really provide much of the edge any more. The same can be pondered of trading patterns, which are another aspect of technical analysis. Those may actually still work well as they are by and large the manifestations of crowd behavior and since human mentality and psychology change very slowly, if at all, the chart patterns are still likely to work well. Moreover, this should also continue in the many years to come.

But technical analysis is only one aspect of the trading business and relying on it exclusively is a bit like viewing the world with one eye only. Chart patterns and indicators show things that have already been set in motion by the fundamentals of a particular stock, commodity, etc. While technical analysts say that charts don't lie, fundamental analysts, annoyed by their arrogance, often counter this by saying that no one has yet seen a rich technical analyst.

The truth is, in my opinion, that it is indeed not very wise to rely on charts only. One of the richest men in the world, and arguably the most successful investor ever, Warren Buffett, is probably the last person you will see staring at stock charts. The billions he has made were due to his treating the stock market from a purely fundamental perspective. He does not just buy stocks with pretty looking charts, he buys businesses.

I believe it is very healthy to pay attention to things that charts don't tell you. To things that can only be surmised by studying the company quaterly or annual financial reports. Most people are not very good at this, but if you are serious about making money in the stock market, you are better off to get educated in this field. Don't follow the easy path of technical analysis only. Become a consummate investor by learning basics of fundamental analysis.

By Waldemar Puszkarz - I am a physicist by training, a daytrader and webmaster by occupation.

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