Here's Why Technical Charts Matter More Than Ever
Mercenary Trader | Jun 20, 2012 01:08AM ET
In times like these it is very important to understand the message of price, and the value of charts as an extremely efficient short-hand means for communicating broad-based fundamental assessments.
But first a quick (or maybe not so quick) aside: There is a false dichotomy between ‘fundamental’ trading on one side and ‘technical’ trading on the other.
The competing perspectives at the poles are so extreme, “fundamentals vs technicals” is practically a theological debate.
We reject this artificial separation of fundamentals and technicals.
In fact we argue that, with a sufficiently nuanced perspective, there is no clear demarcation between the two. The visual picture of the charts, and the mathematical and anecdotal points of fundamental data, are just different forms of situational analysis.
And because the chart represents the collective votes of all market participants — on a size weighted basis, with the biggest participants getting the most ‘votes’ — it is hard to say where one stops (technicals) and the other (fundamentals) begins.
Traders and investors alike get hung up on the supposed predictive power of their models. The technical participant falls into this trap by supposing charts predict the future; the fundamental participant equally errs by assuming his data models — belief about what value ‘should’ be — are incontrovertible claims on reality.
The answer to this problem can be found in the old zen koan, “the finger pointing at the moon is not the moon.”
Whether considering the abstract input of a pattern on a chart, or the abstract mathematical data point of, say, USDA crop estimates or a company’s enterprise value to EBITDA ratio, it is good to remember ‘the map is not the territory’ and that models are not reality. We work with approximations and heuristics — sophisticated rules of thumb — for the sake of efficiency in a complex world.
As such, the need for “certainty” should be taken with a grain of salt (or perhaps a whole shaker). As with bluff-raising a poker hand, or approaching an attractive stranger In a bar, the game is all about
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