Improve Your Odds with Technicals

If you were lucky enough to take on long-term investments in the early stages of life and held those over the decades, the market has offered excellent rewards in dividends and capital growth.

If you weren’t so lucky with having an early investing start there is a way to make up for that lost time – and money!

The key is greater success in a shorter time with the benefit of technical analysis.

Utilizing technical analysis in your trading is a way to increase the odds for success – especially when one does not have decades left to invest.

Additionally, by incorporating technical analysis in your trading, you can create a systematic, less emotional, approach to trading.

Technical Analysis

The technical analysis approach to trading essentially reflects the idea that prices move in trends that are determined by how investors view the effects of economic, monetary, political and even psychological forces.

Technical analysis is a way to stack success in your favor.

If you’ve ever played at the casino, you’re familiar with the term “Probability.”

Although technical analysis isn’t anything like gambling, the casinos are wildly successful for one reason – the probabilities are in their favor.

If a casino determines that rolling a 7 in Craps has a 17 percent probability, or a six percent chance of rolling an 11, the casino simply reduces the potential payout for bets favoring the player with higher odds. This gives the house an edge. In the end, the house knows that chances are more likely players will lose more bets than they win despite winning streaks.

Technical analysis is not based on certainties, but rather probabilities.

Why Use Technical Analysis

If there weren’t enough good reasons to use probabilities in casinos, they wouldn’t have a business. Here are some great reasons to utilize technical analysis and probability trading in your portfolios.

  • Gain an edge in trading
  • Stack the probabilities in your favor
  • Reduce emotions by becoming systematic traders

In the 16 years between 1966 and 1982 the Dow Jones Industrial Average essentially made no headway. During this time period, however, there were several troughs and peaks, which gave the Dow Jones Industrial Average a combined total advance of 1500 points.

Had a technical trader invested at the troughs of this period and sold at the peaks, a $1,000 investment would have grown to $10,000 by October 1983. On the other hand, a buy and hold strategy would have only yielded a gain of $250.

Our current economic and market conditions are quite precarious.

Whether we’ll see growth or stagnation over the next few years is a big question mark!

We do know that there will be gyrations in the market over the next several years even if we don’t see growth due to the economic and geopolitical issues facing America today.

Technical analysis is timeless. Below you will find a recent example of how simple technical analysis is useful.

(MSFT: Investor uses technical analysis to sell covered calls in 2021 and 2022)

An investor owns MSFT and has a rule stating if the stock’s price is below its 20-day moving average he will sell covered calls against his shares to make up for any capital loss.

Otherwise, when the stock is above its 20-day moving average, his rule is to let price rise and not inhibit capital growth by selling covered calls.

It’s simple!

The investor simply follows his rules because in the end he knows he has an edge. There will be times when things do not go as planned, but by staying the course, he’s confident with his rules.

There are so many benefits in incorporating technical analysis in trading.

Making up for lost time and having a systematic approach to trading are just a couple of reasons.

Not only do I personally include technical analysis in my proprietary software, but you’ll find many professionals using them as you follow us on Money Morning Live.

Using technical analysis and probabilities has been one of the reasons I’ve found such great success in trading.

See you soon,

Tom Gentile
America’s #1 Pattern Trader

Join Tom each Monday through Wednesday at 12:00 p.m. ET as he discusses a variety of trading strategies, including vertical spreads.

Did you miss the Live session? Watch Tom’s replays!

Leave a Comment

View this page online: