The stock market’s siren call came when I was in high school but it was another ten years before I stumbled upon technical analysis. I give credit to the broker I was using at the time. One day, out of the blue, he launched into a spiel about equity options. Once I saw on paper the outsized gains that options could deliver, via the magic of leverage, I said “sign me up.” The first trade was a home run. So was the second. That’s when I asked my guru about his secret to success. Opening his desk drawer, he pulled out a blue chart book titled “Daily Graphs Stock Option Guide.” Flipping through the charts, my broker pointed out uptrends, downtrends, and breakouts from trading ranges. After a couple of quick tutorials, I started calling my own shots. That's when I started racking up losses amid the occasional win. Although it’s a well-known fact that the odds are stacked against option buyers, 15% do beat the odds and I wanted to be in that group. For that, I needed an edge so I turned my attention to technical analysis.
When I began delving into technical analysis in 1985, the practice of interpreting stock charts and analyzing market breadth was not mainstream although the discipline was gaining momentum from heavyweight contributors like Ned Davis, Norman Fosback, Bob Farrell, Martin Pring, Martin Zweig, Stan Weinstein, and others. Large brokerage firms typically had a technical analyst on the payroll but they were often relegated to the proverbial “closet” and sometimes subjected to ridicule. Take Louis Rukeyser of Wall Street Week fame. He referred, on air, to his show’s technical analyst, Bob Nurock, as his “Chief Elf.” Despite the flippant moniker, Mr. Nurock’s influence on the show, watched by millions in its heyday, helped give technical analysis the attention it deserved.
Things have changed dramatically in the financial markets since those days. There is so much information available to technical analysts today and unlike decades past, much of it is free. The playing field is more level and many trades are commission free. Paper charts have been replaced by real-time charts available to anyone with a discount brokerage account. Platforms like Think or Swim are packed with dozens of built-in technical indicators or the ability to create your own. There is stand alone software, like Metastock and TradeStation. Excel makes calculations a breeze.
In 1996, I interviewed sixteen prominent technical analysts whose conversations became the basis for my book Technically Speaking: Tips and Strategies from 16 Top Analysts. The book became required reading for CMT candidates. Three years later, I had the good fortune to work briefly with Ralph Bloch at Raymond James. Even though I was a seasoned analyst during my tenure at RJF, I still gained valuable insight from Ralph. He didn’t adulterate his analysis with a hoard of arcane indicators. His methodology was KISS,… “Keep It Simple Stupid”. It’s a methodology I endorse as well. All of my personal trades are discretionary. After almost 40 years in the financial markets, I’ve narrowed down, by trial and error, what I consider the most reliable indicators, many of which I can share with you. I maintain over fifty Excel spreadsheets that allow me to monitor and assess momentum, volatility, sentiment, market breadth, and interest rates, among other things. Primarily, I look for divergences in various indicators, stocks with low volatility, and rare signals that can deliver generous returns. While patterns are undoubtedly important and the foundation of technical analysis, I’ve witnessed less reliability over the years in pattern resolution if one depends solely on chart patterns. Adding other indicators helps reduce the risk of being on the wrong side of a trade.
My goal as a technical analysis coach is to be a mentor to others wanting to learn the “art” of technical analysis using KISS. The first step in that process is to acknowledge that market timing is an art and not an exact science. The dynamics of financial markets shift over time, requiring adjustments to your indicators as well as your analysis. What worked in the past may not work in the future. Staying on top of the game is challenging, but also very rewarding. If you want to learn more about this fascinating realm of market analysis or simply pin down a methodology that works for you, join me for a one-on-one chat where you ask the questions and I try to provide the answers.
chris wilkinson
