Source: Phil Pearlman

Category: Think Tank

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One Response to “Recent Research Supporting the Value of Technical Analysis”

  1. Key points:

    TA Works in shorter term horizons (6 months is mentioned).

    Main focus should be risk adjusted performance, not merely raw performance. Draw downs can kill the investor.

    Page 20 contains the vital insight: Outperformance of technical analysis tends to occur when the markets are down.

    This is vital: The investor doesn’t need outperformance when there is a smooth ride (positive returns for the market). The investor needs outperformance when the going gets tough (when the market declines badly). Thus, technical analysis plays a decisive role protecting the investors from drawdowns.

    The same applies to one branch of technical analysis, namely the Dow Theory. Here you can read less than 1/3 of the time the Dow Theory outperforms buy and hold. However, this meager 1/3 comes when most needed: When a severe bear market hits the stock market.

    http://www.dowtheoryinvestment.com/2013/01/dow-theory-special-issue-how-often-does.html

    Thus, we can see the preciousness of technical analysis when properly applied.

    Regards.