The Real Purpose of Technical Analysis
Technical analysis has faced significant opposition from critics for years.
To this day, many people believe that it’s a big bunch of hogwash, poppycock or witchcraft.
To be fair, in the context that these judgments are made, we often agree. Indeed, there are many individuals and companies who paint an over-glorified picture of technical analysis.
Here’s our position on a few of the popular misconceptions:
- There are no certainties in Technical Analysis.
- It is not a tool for magical price prediction.
- A master of Technical Analysis may not necessarily become a profitable trader.
- There is no holy grail of indicators or algorithms.
- Past performance does not mirror future performance.
- Backtesting is wise for practice but unreliable as an indication of future profit.
At Infinite Prosperity, we use Technical Analysis for one purpose only: To identify when and where the collective market is likely to have order clusters. In identifying these areas, we may act on the side of probability, which is always on the opposing side of the collective market mind.
Your goal as a technical speculator is to buy from unjustified pessimism and negativity, then sell back to unsustainable optimism and positivity. In other words, buy low when the market is fearful, sell high when the market is greedy.
Be fearful when others are greedy, and greedy when others are fearful. – Warren Buffett
We recommend our students print or re-create their own drawing of the sine wave above.
As a technical trader, this must become second nature to you. The white line indicates the cyclicity of price, which we can objectively identify via price action. The extremities of fear and greed, however, are not as objective. Finding the ballpark location of these extremes is the real purpose of a sound technical analysis approach.
In Lesson 4 of Infinite Prosperity, you will learn the 6 core principles of technical analysis that the master technical speculator uses to put the odds ever in his favor. In using these principles, he may find areas in time and price where the market is fearful and greedy. As long as he keeps his own emotions out of the decision-making process, he may buy low, and sell high, by acting in an opposing fashion to the collective market mind.
In other words:
- Buy from the pessimists, sell to the optimists.
- Buy from those in desperation, sell to those in denial.
The 6 core principles are as follows:
- Principle 1: Market condition
- Principle 2: Market phase
- Principle 3: Support and Resistance
- Principle 4: Indicators (to be used sparingly)
- Principle 5: Vanilla Price Action
- Principle 6: Acceleration/Deceleration Candles
Combining Technical Analysis
I was given my first Technical Analysis lesson as a teenager.
I was told to treat Technical Analysis like snow. In minor, one-off samples, it’s flakey, lightweight, and transient.
If you stand around looking at it for too long, it could melt away. Take any individual Technical Analysis principle or indicator – and the same is true.
However, when you clump together a bundle of snow, you can create a solid ball of energy that packs a serious punch. The same is true also for the principles of Technical Analysis.
To make any difference in your trading edge, you must use technical principles in conjunction with each other.
We call this “stacking multiple layers of confluence”.
- Market Condition: Trade an oscillating market. Avoid indecision and chop.
- Market Phase: Enter on the pullback.
- S/R: Buy off support, sell into resistance.
- Indicators: Use indicators sparingly. Pay close attention to raw price action.
- Price Patterns: Look for 1 of the 3 primary price patterns.
- Candlestick Patterns: Enter during deceleration.
By combining the technical representations of market condition, phase, key support, momentum indicators, primary price patterns and deceleration – you will gradually learn to tell a story of emotion in the market. You will be able to see the oscillations in the collective market mind. As the story becomes ever clearer, you will shift toward the mastery of technical analysis.
The ability to identify what the collective market mind is “thinking” and “feeling” at any given time is technical analysis mastery.
So why doesn’t everyone become a master?
Well, the market itself is a living, feeling entity.
The individual trader is also a living, feeling entity.
Where the market may move into a greed state of unsustainable optimism, so to can the individual trader move into an optimistic greed state.
Where the market may move into a fear state of unjustified pessimism, so to can the individual trader move into a pessimistic fear state.
The comedic reality is this: Most individual traders have their own feelings manipulated by the feelings of the market.
In other words:
- When the market is rallying in greed, they rally in greed.
- When the market is falling in fear, they fall in fear.
The individual trader who “resonates” on the same feeling as the market becomes part of the collective market mind.
From this state, it is impossible to make money in the market.
Indeed, the only way to become a profitable technical trader is to transcend the oscillations of the collective market mind and take action from an emotionally neutral, balanced and poised state of mind…
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Herein lies the Infinite Prosperity difference.
For the last 3 years I have closely mentored under the world’s leading human behavioural specialist, and one of the few remaining polymaths on earth, Dr. John Demartini. Having graduated from his advanced classes, I am blessed to have taken with me certain tools and systems to methodically calm (and even eliminate) fear, greed, anxiety, naivety and scepticism from the mind.
In approaching a state of pure emotional neutrality and presence, our traders understand how to execute from an entirely different perspective compared to the average market trader.
This is why at Infinite Prosperity, we have two entire lessons dedicated to mindset and psychology. I truly believe that if you can master the mental game, your trading results can be completely transformed… and we have over 5,000 students from 50 countries who can vouch for that.
If you haven’t yet taken the time to read our first 3 lessons, they’re yours to enjoy for free! I promise you’ll learn something that is eye opening.