Buy and Hold Is Dead: How to Make Money and Control Risk in Any Market

Chapter 15. Oscillation Cycles

Technical analysis is a study of money flows into and out of the market. By definition, technical analysis already incorporates news and associated expectations, which are driving the decisions of smart money. Therefore, reasonably, technical analysis is all-encompassing as a standalone observation. However, it requires regular updates because support and resistance levels change over time as smart money makes conscious decisions to buy and sell.

In addition, many investors argue that fundamental analysis is more important. I too regard fundamental analysis as an important part of the overall process, but there are limitations. Specifically, fundamental analysis has no bearing on trading decisions at all. Therefore, technical analysis is the driving force behind all of our proactive strategies, not fundamental analysis. Appropriately, I will explain why and dispel all arguments before we move ahead.

With that said, fundamental analysis does play a role in our overall process, so I need to be clear. However, it does not play the same role as traditional doctrine might have some readers believe. I first encountered the traditional approach to stock market investing when I was a registered investment advisor for large brokerage firms. Aside from their relative ability or inability to assess the underlying strength of any specific company accurately, the analysts I saw followed the same directive. Their stock ratings— buy, sell, or hold—were all recommendations ...