Technical Indicators: Avoid the Seduction

CBS MarketWatch [MKTW] offers daily news and analysis. They also offer technical analysis. Take a look at CBS MarketWatch’s use of predictive technical studies – their version of technical analysis. You can go to CBS MarketWatch, chart a stock and quickly apply a technical study to it. If you want to look at Microsoft with an RSI study no problem. If you want to apply an exponential moving average to Oracle it takes just seconds. Here is a screen shot from CBS MarketWatch so you can see what we’re describing in terms of the layout and example studies applied to a chart:

MarketWatch web site states:

The Technical Indicator answers questions that active traders need to know, like: How are the indices positioned going into today’s trading? Is the Volatility Index sending bullish or bearish signals? What does recent market movement suggest for the foreseeable future? What are the near-term support points? Is the market setting up to reach the next higher plateau or is it poised to stumble? When can investors expect a breakout from recent patterns? At what levels are the markets experiencing buy interest?

If you believe this — you better reach for your wallet! Don’t be seduced by claims of prediction.

Avid readers of the TurtleTrader site will instantly see there is NO use of money management at MarketWatch. What CBS MarketWatch offers its readers is a slew of so-called technical studies in an effort to provide buy and sell signals. However, at no time does CBS MarketWatch judge the studies as to whether they are good or bad or even if they have limitations. Since money management is 90% of the trading game, what good can these studies possibly be as indicators of when to buy and sell? Not much.

Most people will never take the time or energy to learn how to trade properly since it is so much easier to be seduced by the ease and comfort of a free charting service or technical study that appears to be credible. However, trading is a zero-sum game and for every winner there is a loser. At TurtleTrader we expect, we even hope that many will continue to stay fixated on the likes of a CBS MarketWatch, Motley Fool, etc. That is fine with trend followers since it makes it that much easier to win losses of people armed with bad plans.

Wisdom to consider from Paul Samuelson:

There is a tempting and fatal fascination in mathematics. Albert Einstein warned against it. He said elegance is for tailors, don’t believe in something because it’s a beautiful formula.

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