How Is Technical Analysis Changing Fundamental Analysis?
Chart Indicators Transform Data into Histograms or Lines
In the early days of Technical Analysis, Fundamentalists scoffed at the Technical Analysts who claimed that everything about a stock was right there in the stock chart. Price and how it moved was all that really mattered. Fundamentalists argued back that the movement of stocks was a Random Walk or that Technical Analysis was like using a crystal ball rather than corporate financials.
Chart example #1 below has 3 new Histogram Fundamental Stock Indicators. This is a monthly view chart example with Percent Shares Held by Institutions, Earnings Per Share Percent Change, and Revenue Growth Rate Indicators.
Chart example #2 below has Technical Indicators and Fundamental Line Indicators for a better Relational Technical Analysis™. This is a daily view of the same chart example with Balance of Power, Time Segmented Volume, and MoneyStream Indicators.
Now Fundamentalists are showing more interest in stock chart Technical Analysis, due to the NEW Fundamental Data Indicators. These convert Fundamentals into a graphical form that is easy to study, analyze, and use WITH Technical Indicators. However many of the old school Technical Analysts are scoffing at these indicators as not “Pure Technical Analysis.” This is a rather sad turn of events. All Technical Traders should be excited and embrace any additional data that can be incorporated into stock charts to make choosing stock picks faster, more reliable, and more profitable.
Stock chart indicators can transform data into histograms or lines to make it easier to see what is going on. Whether data is Price, Time, and Quantity OR if it is Percent Shares Held by Institutions, Earnings Per Share Percent Change, and Revenue Growth Rate as Fundamental Line Indicators should be a bonus.
This is the basis of what I call Relational Technical Analysis and it is the evolution of Technical Analysis.
I was asked to present my theories on Relational Technical Analysis to the Market Technicians Association membership and it was a huge hit. The Market Technicians Association is the governing body for Professional Technical Analysts who work for the Institutions, Banks, and Financial Services industry. They are now beginning to include Fundamental Data into their theories.
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Time Segmented Volume
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Technical Analysis Webinar
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Relational Technical Analysis for stocks includes using four areas of analysis all together which are Technical, Risk, Quantitative, and Fundamental Analysis. By incorporating all of these analytical aspects into stock charts, the depth of interpretation is expanded greatly for improved trading decisions.
The original goal of Technical Analysis was to study the stock in a graphical form so that trends could be seen easily. The theories included cycle analysis, which is also fundamentally based in business and industry cycles. Trends also occur in Fundamentals AND since 90% of Market Participant Groups still are firmly entrenched in using Fundamental Data, the trends of the Fundamentals clearly offer more information for better stock trading decisions.
Often a Technical Indicator may have some ambiguity in the pattern, or may have suddenly changed. But a quick check of the Fundamental Indicators can reveal why this has occurred. Understanding the WHY of trends, candlestick patterns, and indicator patterns is crucial to consistently successful trading.
It is unfortunate that some Technical Analysts are scoffing at the addition of the new Fundamental Indicators especially since this inclusion has finally captured the attention of the Fundamentalists who are now willing to try Technical Analysis as long as they can see the Fundamentals in the charts as well.
There are many charting software companies that have yet to integrate Fundamental Line Indicators, but there are a couple who offer these indicators now. These companies recognize the importance of including every data stream that can be graphically represented into the charts.
As a Technical Trader make sure your education, training, and analysis includes Relational Technical Analysis as well. It is no longer enough to just recognize a candlestick pattern, or an indicator crossover, and assume the stock will move as you hope it will.
Technical Analysis is evolving, changing, and adapting as the Stock Market Structure changes and new tools are continually being developed. To ignore the improvements that Relational Technical Analysis brings to stock charts is like refusing to use a mobile phone and trying to rely on finding a phone booth to make your phone calls.
Technical Traders need to accept that their education needs to continue to include NEW Technical Analysis theories and concepts, and not get stuck in the outdated strategies and systems of the 1970’s and 80’s.
Go to the TechniTrader Learning Center and watch a wide variety of training webinars.
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Martha Stokes CMT
TechniTrader technical analysis using TC2000 charts, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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