Charts – Indicators – Seasonals – Market Makeup
This type of examination is based on history just as fundamental analysis is historically based. Technical analysis is the study of history that says, when a certain chart formation or numeric indication happens, history shows the market will react a certain way with a high level of frequency.
We still use the old charting systems which have been around for years, and the reason is because so many traders use them as well. When a certain chart formation occurs, there is a tendency for the market to move in a particular way because so many people are following the chart actions. We also use the Japanese Candle chart formations for the very same reason.
While charts require some “mind to eye” coordination, indicators are pure math. They tend to lead or confirm chart action. They do not require interpretation - just recognition that something is changing. When those indicators are graphed, it can be very clear that something is changing. Our system is a little more complicated than a simple mathematical formula but is based on multiple layers so that when most of them line up, the odds increase dramatically that the market will move just like it has done in the past with that same mathematical setup.
The seasonal graphs we use are based on the prior 20-years of annual direction to see if there is a logical reason for the market to move a certain way during that time of year and if so, to look to see if the current year is following those tendencies.
We analyze the weekly Commitment of Traders reports to determine if there is a directional trend possible due to the make-up of the traders in the market. This is based on if the funds are buying or selling, if the small spec is over extended or if the commercial is changing their stance on the market. This, too, is historical analysis based on what has happened in the past and how those who make-up the market has been positioned in the past.