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Technical Analysis Levels The Playing Field
Education | 10 July 2009
By: Clement Kan
Articles (1) Profile

Legendary investor and business news luminary William O’Neil once said ‘professionals who don’t make use of charts are confessing their ignorance of highly valuable measurement and timing mechanisms.’

O’Neil had in mind price charts as timing mechanisms, more specifically price charts of financial trading instruments such as stock, forex, commodities and derivatives. He was referring to the study of Technical Analysis, which looks at methods of analyzing price charts to predict trends. This in turn allowed professionals to time trading moves in the market to capture maximum profits in the shortest possible time.

The professionals O’Neil mentioned in the same breath are persons who actively invest and trade in the financial markets. This means that any person who wants to make money consistently should take note, students, retirees and house-makers included!

The study of chart reading or Technical Analysis is not new. First published in a book in 1755 by Japanese trader Homma Munehisa, Technical Analysis went on to be popularized in the Twentieth Century by household names such as Charles Dow, Ralph Elliot and William Gann.

While previously viewed with skepticism, the study of Technical Analysis has grown rapidly in Singapore over the past five years. This is due to a number of reasons: the proliferation of charting software, Internet-based trading platforms and the desire of ordinary individuals to master and grow their personal fortunes. In addition, the achievement of legends like George Soros, Jim Rogers and William O’Neil also capture investors’ imagination.

As more and more people take up Technical Analysis, those who do not do so are at a competitive disadvantage.

Unlevel Playing Field
Various factors are critical to success at trading and investing:

  • Opportunities
  • Tools
  • Information
  • Competency

We will realize later that chart reading provides a basis for individuals to trade on par with the best institutions based on the critical success factors.

Opportunities come from access to as many markets and trading instruments. Nowadays brokerages give investors trading access to markets around the world at highly affordable rates. An individual can trade both exchange traded and over-the-counter (OTC) products in nearly all the major markets around the world from home, 24-hours a day.

Extremely sophisticated trading and charting software are also available now to individuals at a cost of next to nothing. In fact, intense competition among brokerages that want to capture the business of investors and traders means that they continue to provide cutting edge to savvy individuals.

Information and competency are critical success factors where investors and traders face a disadvantage compared to institutions. Comprehensive real-time news is expensive to individuals. But more crucial is the competency to process a lot of economic and financial information in a short time. Let’s face it. How many individual traders or investors fit the following descriptions:

  • Able to process information such as trade numbers, GDP and money supply like an economist.
  • Able to read financial statements like an accountant or auditor.
  • Have the acumen to look at business environment and prospects like a business executive.

How do top fund managers do it? They form a team.
I See The Same Charts As You
By now it is clear that individuals are fighting in the markets both alongside and against big players. Individuals are at a disadvantage. Technical Analysis is a great study that puts individuals on the same level with the same tools, the same amount of information, at little or no cost and offers the best chance of mastery. Technical Analysis offers such advantages because of its features:

  • Charts print out prices and volumes that are based on actual transactions. They don’t lie.
  • Large institutions leave trails of their activity in the charts.
  • Because price is the outcome of price finding by all players in the market, the outcome shows the consensus of the market to the latest information available.

Therefore, investors and traders can concentrate in one field of study, that is Technical Analysis, and attempt to move together with ‘smart money’. This means analyzing the ‘trail’, following the trend and moving together with the crowd. It does not require many years of multi-disciplinary study nor any pre-requisites to start.

Put Yourself On The Same Level As Professionals
Here are a few steps for investors and traders to pick up Technical Analysis:

  • Attend a course and find a coach or mentor to work with. Choose a course that emphasizes a ‘hands-on’ approach. If you listen but do not practice, a lot of information will slip your mind when you walk out the door after class.
  • Fortify the learning by reading widely to understand the strengths and weaknesses of different approaches to Technical Analysis. Decide on an approach that matches your personality and trading motive.
  • Apply the concepts of Technical Analysis by analyzing the markets. A charting software is necessary at this point but there are plenty of excellent free or highly affordable software.

Expose yourself to many markets. It will be initially confusing but it is as necessary as a driver needs to know how to drive in different road conditions. Once you have done so, you will also realize that how integrated the world financial system is. You trade many markets without exposing yourself by doing it through demo accounts.

For investors and traders who analyze the market by looking at fundamentals, chart reading will be a good way to complement your analyses, not to overturn them.

There is no ‘one-stop-fits-all’ approach. In a long and fruitful investing career, put your Technical Analysis education together in a step by step manner so that you will have an excellent foundation. Once that is covered, you will realize how quickly you can go on learning on your own.

Professional Traders, Professional Training
TerraSeeds Market Technician is an education provider in strategies for stocks, forex, futures, commodities and options trading. We have been operating in Singapore since 2005 and understand the needs of investors and traders. Our training solutions are catered to both individuals and corporations and range from entry level to sophisticated strategies.

For the investor and trader, join our courses at the stage you want, when you want it and according to your own learning and trading needs. Meet our trainers who are experienced in multiple markets and we will help you to bridge your gap between knowledge and application. More information can be found at; 
alternatively call us at (65) 6492 3196 for a consultation.

Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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