Getting Technical

Over the past several years, technical analysis has become an increasingly popular method of evaluating securities and markets, fueled perhaps by the bursting of the dot-com bubble.

Many fundamentalists predicted a safe future in technology, and people bought in. The problem was that they never had a plan for getting out. And when the bottom collapsed, people watched six figures drop to four and four to three. Fundamentalists were left trying to figure out what happened.

In the Numbers

In my opinion, it doesn't matter what happened. The only thing that mattered is that it did happen, and that you could see it in the numbers. This is the unemotional heart of technical analysis.

Instead of attempting to measure a market or a security's intrinsic value, technical analysis strictly looks at past and present market data, such as price and volume movement, and attempts to identify trends and patterns. The primary tools of the trade are various types of charts, trend lines, moving averages, relative strength indices and support/resistance zones.

While some technicians favor complex statistical analysis tools and the recognition of patterns such as head-and-shoulder, cup-and-handle or double-bottom formations, my philosophy is to keep it simple.

As a trend-follower, I'm a strong believer in listening to what the market is telling me, recognizing the predominant trend and following it. This is not rocket science (unlike fundamental analysis). No, this is surprisingly simple.