What Is Technical Analysis?

I often talk about the use of fundamental and technical analysis throughout my posts and when talking about individual stocks.  Greg Harmon of Dragonfly Capital had a good read on the topic "What is Technical Analysis". Technical analysis is just one of the many tools that we use here at DWCM to evaluate investment positions.  Likely if everyone was using the same strategy such as specific aspects of technical analysis or even fundamental analysis it would quickly lose its meaning.

Via Greg:

What it is

Technical Analysis at its base is an interpretation of price action plain and simple. It can be interpreted in many ways. Some use resistance and support levels based upon previous points where an asset has struggled to move higher or lower. Some use trend lines that rise or fall to glean insights into changes in buying and selling sentiment. Many look at historical patterns like triangles, wedges and channels to try to estimate how prices will react going forward. Still others look for cycles and patterns like Fibonacci ratios, seasonal factors, election cycles and longer cycles like Elliott Waves and the Kondratieff Wave for an explanation. It can get quite complex with derivatives of the price action in momentum oscillators and volatility measures. Volume can play a role as well as an indicator appetite. But no matter what tools they use all technicians are looking for an edge to give a good entry or exit on a risk reward basis for a deployment of capital. A risk framework to design a trading strategy around. A forecast. A possible future with contingencies.

What it is not

This is a subtlety many that do not practice TA fail to grasp. A possible future with contingencies. There is nothing about certainty in that statement. TA is not a road map. It does not point to an outcome. Probability is more like it. It is not fixed in time either. The read can change with changes in the price action, expected or unexpected. Nothing is certain. It can change with time. The closest thing to certainty in the TA world are horizontal support and resistance lines. They do not change, but they are also not made of concrete. Price can just as easily blow right through them or gap over them as it can be halted. And what has worked in the past may or may not work in the future.