Apprenticed Investor: Tracking Elephants, Part 2

In the last installment of the Apprenticed Investor series, we discussed how charts reveal the elephantine footprints of institutions and shared the golden rule of technical analysis: Don't buy stocks when they are in a downtrend.

But the charts have many other uses -- even for nontechnicians. Fundamentalists can use technicals to help with their risk management, as well as their decision-making process.

This can be accomplished without using complex pattern recognition to predict where a stock might go, or tracking volume for confirmation of a move.

Charts are far less squishy than fundamentals. They are not based on someone's estimate of what future earnings might be, nor do they require you to guesstimate management's skill set or presume the desirability of a new product.

My biggest complaint about Wall Street's fundamental analysts is their disconcerting tendency to downgrade stocks after all the bad news is out. Hey, once the problems are publicized, it's too late for the investor to avoid the bloodshed and tears.

One difference between technicians and fundamentalists is that we never listen to what management has to say: Never.

Quite bluntly, I'm too trusting of an individual and don't have the insight to know when a CEO or CFO is lying to me. So listening to their sales pitches offers me little in the way of trading advantages. And as we have seen over the years, the fundies who believe management often get caught with their pants down.

With that in mind, let's go over some of the less technical uses of technical analysis, focusing today on more defensive vs. offensive maneuvers: