 |
February 1997
I'm sure it comes as no surprise that I am often queried about which technical methods a newcomer should focus on. Technical analysis is, after all, a very diversified subject, and as Editor of STOCKS & COMMODITIES magazine, I see as many new concepts and classical techniques as anybody. Yet I gravitate to the simpler and, I believe, more revealing approaches than I do the latest and perhaps more complex methods. I've found that for the most part, adding complexity does less to answer the important questions of making profitable trading decisions than it does to cloud the answers. Simple approaches, I find, can answer the trader's basic questions: What is the direction of the trend and at what price level does that direction change? These are simple questions, and I believe they can be answered with a few trendlines, support and resistance points.There's a lot of valuable information to be gleaned from such approaches, or at least adequate information to trading a market. But can you use a simple approach to trading a stock market? After all, it's a market of stocks, not just a single market. I think you can, but don't just take my word for it. The STOCKS & COMMODITIES interview this month is with Ralph Acampora, who is the director of technical analysis for Prudential Securities. Back in June 1995, Acampora published a report outlining why he believed the Dow Jones Industrial Average (DJIA) was headed to the 7000 level. That forecast may not seem that spectacular a prediction, but at that time, the DJIA was trading at 4500, and Acampora's forecast was a bold one.
In our interview, he explains that basic technical analysis, not a collection of indicators, was one of the major clues to the continuing rise of the DJIA. He also explains that he reviewed similar periods in history to put together his prediction. And besides his market research, we also talk about Acampora's early days with the Market Technicians Association (MTA), as he was one of the organization's founders. Acampora is an individual who has made important contributions facilitating the expansion of technical analysis beyond a handful of market analysts to what it is today, and his insights are intriguing.
My preference is for the simple approach, but that may not be for everyone; whatever method you find most useful, it is of paramount importance that you take the method and test the validity of the idea on your favorite market. Whatever you do, don't just say, "This looks good," and then risk your capital; you're setting yourself up to fail. And again, don't just take my word for it. In the September 1995 S&C interview with trader Robert Krausz, he mentioned that his research led him to conclude that having no tested trading plan is the root cause of the problems that most traders have. That may seem obvious, but sometimes the most obvious things are the ones we don't see. Focus on learning basic approaches, turn the concept into rules and test the ideas out. Then reach for the moon. At the worst, you'll fall down going forward.
