STREET DOGS

The technician believes that anything that can possibly affect the price — fundamentally, politically, psychologically or otherwise — is actually reflected in the price of that market. — John Murphy

There are thousands of difficult-to-understand mechanisms that lead the market, which come into play before the news reaches some poor trader sitting at his desk. But the one thing that does hit the market is a huge sale or purchase. Isn’t that the basic rationalisation for technical analysis? Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo.

There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders. For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he's not going to take a patient's temperature. But, of course, that would be sheer folly.

If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable or cold and stagnant. You want to know everything you can about the market to give you an edge. Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behaviour. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes. — Bruce Kovner