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Zen and the Art of Technical Analysis part 1

An acquaintance of mine recently spoke at the Pepperdine Lectureships. She spoke about how two people can think they are talking about the same subject but
really they are not. They use the same words, but they have different meanings for those words. She went on to give an example of what she meant that I had
never heard. I’ve done a good bit of studying myself and yet I had never heard of her example. It would take WAY too much to explain her example here. It
was awesome, so go listen to the Pepperdine Lectures.

I encountered a similar situation at work recently when I learned another part of the process I am involved in. It turns out for years there has been a
huge misunderstanding between my work group and a counterpart work group. We all thought we were talking about the same thing but once I was trained I
realized we were not. A short presentation in a staff meeting had jaws on the floor. It led to changes in procedure that then led to a more efficient
process.

As far as my trading, I consider myself a technical trader. I’ve been saying that for years. What I’ve come to find out is, that means different things to
different people. I am very used to people that are not trained in trading options having NO idea what I do with them. What did surprise me was that some
people trained in options didn’t understand either. That was until I heard that Pepperdine lecture and thought about how diverse technical analysis is.

I was introduced to technical analysis in 2005. It was software with three “proprietary” indicators that predicted the future movement of a stock. The plan
was to do searches for equities that this software showed as bullish and then buy the equity. When it went bearish, you sold the stock for a profit. The
software required an annual fee for use. When I joined OA, I saw what looked like the three indicators. They are free with every charting package I have
seen. They work as well as the “proprietary” indicators. There is no magic with them, no guarantee, but they have made me money, and they do not cost
anything. They are pretty simple to use. However, your trading style needs to fit the indicators used.

In my 9-year journey, I’ve tried some trading idea services. Some lost money, fortunately for me only virtual money, and others made money. When I did the
final analysis those that made money either only did as well as I did myself or I did better. Certainly they were not worth spending money on. My favorite
was when I tried the service for about six months. I followed their recommendations religiously in a virtual account. At the end of the trial my real
account had made money and their account had lost money. The sales person called and I told them the results, their response was I needed to use their
premium service. I asked if that lost money even faster? Obviously I did not sign up for it.

Through the years, I’ve looked at lots of indicators and technical analysis styles. Fibonacci’s, Wyckoff method, Williams %R, Pivots, DOW theory, Elliott
Wave, IBD, OA triple threat… Some are pretty simple, and some are complicated. Most of them target day traders but say that the system will work with
longer term trading. Some work with my style of trading, some do not work with my style of trading, and I am convinced some just don’t work at all.

Some say that technicals trump fundamentals and others say fundamentals trump technicals. I say neither one trumps the other depending on how you do
technical analysis. I trade technicals, but I always consider the fundamentals. Stocks will move completely opposite to fundamentals, but they always
return to the fundamentals. Fundamentals are open to interpretation just as technicals are. We have seen many stocks with negative earnings move bullishly
until they don’t. We have seen stocks beat earnings estimates only to drop either immediately or a few days later. They beat earnings again and yet they
continue to drop.

So how do you trade something like that? Well, you do not have to but if you cannot help yourself you trade it with technicals. When the technicals lineup
with the sentiment and fundamentals you trade aggressively, when they do not, you trade conservatively. That is one of the many amazing things about
options, and you can trade anything the market does. You can trade forgiving trades or trades that require great accuracy. Next time I’ll write about how I
align my trades with my confidence in an expected move.

Read Part 2 Here Zen and the art of Technical Analysis part 2

Ken Bailey
OptionsANIMAL Instructor

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