Why Technical Analysis ?

Traders swear by Technical Analysis, in fact it's rare to find one who will not use TA (technical Analysis) for finding entry and exit points. However, some long-term investors dispute it's importance. These long-term investors consider movement of markets a random-walk and consider Technical Analysis akin to reading tea leaves.

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Our belief at AJ (alpha-Johnny):

1. Technical Analysis provides a way to understand markets. When we drive a car, we talk about speed, acceleration, directions (left, right) etc. To us, TA (technical analysis) is a language used to explain the markets.
2. Markets may, to a casual onlooker look like random-walk, but there is a method to it's madness. Just like driving a car, if your steering is turned all the way to left, now it can only turn right, and if you braked hard and stopped, now you can either just stay there (usually for a bit) or start moving, but cannot de-accelerate any more.
3. Markets are an information game, and the thing about information is that it's not evenly distributed. Coming back to our car analogy, let's presume that you came to stop on a red light and there's a really long queue. The cars in the front see the light turned green and start moving - which creates gaps and a sense of motion in this caravan at the Red light and that usually is an indication for other drivers to start moving. Some of these drivers maybe far behind the red light and won't even see that it's turned green till they come very close to the intersection.
   The irony of long queues however is that sometimes just as you pick up speed coming close to the intersection, you realize that the light is turning red on you. Technical Analysis is math (mostly), and approaches to human behaviour and logical thinking. With Technical Analysis, you compute how long the light stays Green, how many cars can cross on an average and more such parameters. So as you are coming close to the intersection, you know the probability of you crossing or getting stuck.

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