Technical Analysis Is Not Voodoo, It Is Invaluable Context

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

If you draw enough lines on a stock chart, one of them is bound to predict the future accurately! Given that technical analysis is perfect in hindsight and flawed in foresight, many investors mock it as arbitrary. Some, like Aaron Brown, link its practice with horoscopes, tarot cards, and crystal balls.

The difference between science and voodoo is rigorous, systematic, skeptical testing. If by "technical analysis" you mean the standard charting dogmas, with constant exceptions to explain every missed prediction, it's pure voodoo.

—Aaron Brown

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Technical analysis is one of many tools we use to manage clients' wealth. While inconsistent, as with every forecasting model, it is the best means for quantifying investors' collective behaviors. Simply put, historical price and volume data provide a critical context for price levels likely to motivate buyers and sellers.

For more information on where technical analysis fits into my investment analysis, please read my article, Golf and Investing: Mastering Long and Short Games For Success.