When Technical Analysis Fails...

Okay, like i said, learn t/a. it's fast, and often provides solid forecasting. but, as i also said, i've turned to quant instead of t/a (technical analysis) because i think t/a is losing its grip. still (even though i sell quant training), i strongly recommend first learning t/a basics so you get familiar with the power of charts, then move on up to quant. meanwhile, here's one truly hideous example of t/a failure. admittedly, it's rare for t/a to fail so grossly but it does dramatically illustrate my point...

for those who don't yet know how to read t/a, there are three indicator boxes at the bottom, MACD, RSI, and STOCHASTIC ("stoch"). In this chart's colors for MACD and stoch, the green line going up is supposed to forecast a rise in stock price (shown in main part of chart); the green line going down is supposed to forecast a drop in stock price. RSI going up is also supposed to forecast a rise, and going down forecasts a drop. but notice that you get false signals from ALL of these t/a indicators at least 5 out of 6 times (stoch and macd get it right only once, second white guideline from left). the white vertical guidelines are there to help you compare price to indicator. you judge by the direction of the indicator at the white line- not the day after, which is too late. that's an awesome loss profile for t/a in this case- with signals saying the stock goes up when next day it actually goes down, and vice versa. in my next blog, i'll show you the same stock for the same period but using a quant chart.