The ability to read these formations, they claim, allows one to tell whether prices will rise or fall. These individuals, called technicians, strive to predict future price behavior from historical relationships. A perfect timing system does not exist. But this is not to say that technical analysis is without merit. Quite to the contrary.
Technical analysis plays a larger role in the stock market than fundamental analysis.
I have discussed the application of fundamental analysis to stock valuation and stock safety in several prior articles. So far, however, I have not mentioned technical analysis. While an understanding of stock value and safety are vital for appropriate stock selection, a knowledge of technical analysis and timing is essential for knowing when to buy and sell. Designing a stock timing system is quite the same as designing a smart bomb. You need an analytical device that recognizes its target, and a decisional mechanism to trigger an output.