You know, technical analysis is interesting. I don’t know how many of you use technical analysis in this class? OK. Technical analysis, by the way, ignores fundamentals. Or at least it’s supposed to ignore fundamentals. And really, it probably does a better job of predicting what’s going to happen than fundamentals do.
If I see a stock that is falling apart, and there’s no news on it, is that good or bad? A stock falling apart, with no news on it. That’s bad for the stock. That means somebody knows something about that stock that I don’t know about. I think that technical in many cases tells you something about the stock that you can’t see in fundamental analysis—maybe some fraud in the company. You never know what it could be, a bad earnings report coming out. When a technical chart starts to break down, and there’s no news about that breakdown, then there’s a problem there.
So I think technical analysis is like a picture of supply and demand for the stock. When supply and demand looks good, it’s a good call purchase, and when it doesn’t look good, it’s a good put purchase. So I do use technical analysis, but remember my old rule: I’m only going to be right hopefully 60% of the time. And reread that rule every once in a while—because a lot of times you’re going to be wrong.
InvestorPlace advisor Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. Try Maximum Options today for 2 months for only $99.