Many think of Technical Analysis as a pseudo science, that if applied properly will give you a measurable, statistical advantage, much like a card counter at the Black Jack table.

Well, in my opinion, this is a load of bunk. Technical Analysis (TA) is the art of analyzing mob or herd behavior. And for the most part the mob is completely unpredictable, at times chaotic. This is because it is irrational and driven by emotion, greed, and unpredictable market, economic, and societal events. But even in chaos there emerge patterns, trends and investor sentiment. Can you quantify it? Not really. But you can qualify it, and act accordingly.

Our real discoveries come from chaos, from going to the place that looks wrong and stupid and foolish. -Chuck Palahniuk, author of Fight Club

The primary goal of TA then, is to identify when changes in price, or another way to say it, changes in the supply/demand curve, might occur. The best evidence for this change are historical prices, trends and contrarian indicators. All of these factors build a picture of the sentiment of the mob. The positions you take are built upon this sentiment.

So, if you approach TA as a tool to help determine the sentiment of the collective investor, and not a formulaic approach to investing, then you’ll do well.