Charting the Markets with Technical Analysis

Last month, we discussed common cognitive biases that many investors face. Dr. Jack Muskat joined our webcast to explain several psychological biases that investors often deploy—sometimes to their detriment. Your stock isn’t more valuable just because you own it (“the endowment effect”), nor should you place much reliance on the price you paid to buy it (“price anchoring”).

Identifying these biases helps minimize their impact when making investment decisions.

While fundamental analysis evaluates the financial health and profit potential of a company, technical analysis examines the pricing behavior of a stock. Although these investment styles differ significantly, both offer valuable perspectives. 

Technical analysis provides great insight into the psychological patterns of other investors. While we advise against price anchoring, many other people will still do it. For example, if a stock trades at $30 for months and then dips below that price to $25, you can expect a wave of sellers when the stock returns to $30. 

This week, Dr. Muskat returns to our webcast to discuss technical analysis. 

Recognizing the psychological biases of other investors allows us to predict how traders will react when certain stocks reach specific prices. 

Market psychology and human behavior tend to be cyclical. Patterns that have emerged in the past are likely to recur, providing clues about future price movements. By analyzing charts and patterns, we can more easily identify optimal entry and exit points. 

At Schneider & Pollock Wealth Management, we consider both fundamental and technical analysis when making investment decisions. Any piece of information that can give us an edge is worth examining.

-written by Jeff Pollock