Volatility and Technical Analysis:
I don’t really consider myself a true market technician, unlike the real techies who firmly believe “the tape tells all.” However, I do spend a fair amount of time looking at charts and never make a trade without consulting them. I rely on the simple stuff like moving averages, trendlines, support & resistance, volume relationships, and maybe a Bollinger Band here and there. I consider chart analysis a part of an overall strategy, a piece of the puzzle. However, as a short term trader I must confess to applying a more heavy weighting on chart information.
As all eyes are on the markets these days because of the wild fluctuations experienced over the past seven trading sessions, I have come to realize that technical analysis is less reliable now than during less volatile markets. Recent market activity has shown that technical analysis [chart reading) works when it works and then is also absolutely useless at times. It is for this reason that it is imperative to listen and watch what the market is doing instead of trying to discern lines and bars and angles on a chart what the market should be doing.
Be patient, use all of your tools collectively and trust your trading instincts. And always use “stop loss” orders to minimize losses and protect your capital.
