Rhody Trader

Bullish Jim wrote the following yesterday in his The Resurrecation of Technical Trading? post.

During the bull slaughter of recent months I heard more than one CNBC pundit describe what happened as “the death of technical trading”. As a rehabilitating chart head I can attest that a lot of filters and patterns that worked well for me in recent years didn’t work very well during November and December of 2007 and then didn’t work at all during the first couple of months of 2008. The scary truth was that stocks were falling through support level after support level without a clue as to when it would end.

I find it rather interesting on two fronts that anyone would suggest the death of technical trading – aside from the fact that it’s been in use for many years, across all types of market conditions.

First, during the mentioned timeframe the technical methods I use – in particular the price distribution based strategies – did extremely well. Naturally, whenever the markets change their personalities it can mean a change in what works and what doesn’t. A lot of times traders get used to one level of volatility, and find that when the markets change they are either getting stopped out more often or not getting the same gains they were before. It’s the normal cycle of things. We were in a bear market. They are different.

The other thing that makes the above statement interesting is a conversation I’ve had with my mentor. He started the company I work (which then was strictly focused on the Treasury market) for back in the early 1980s at a time when the volatility of the bond market was starting to really pick up thanks to aggressive Fed policy. He sees now as being very similar in the stock market as those days were in bonds. Given that this guy’s massive amount of experience and success in the markets, I’m going to give him the benefit of the doubt and guess that he’ll be right. That’s good for me since I’m in the stock market analysis business.

PS: The quote in this post on Michael Covel’s blog hits the consistent applicability of technical analysis point pretty well.

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