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Forum Views - March 2023

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FORUM VIEWS - MARCH 2023

s a trader or investor, it is essential to develop a

process. Using the same checklist or rules by which

Ayou determine position entry and exit creates a

repeatable discipline for trading that helps avoid behavioral

pitfalls. Technical Analysis provides a broad toolkit of

indicators that, when used in combination, give the trader a

weight of the evidence perspective that can be used across

timeframes and in any market regime. While the composite

blend of information is powerful, the complexity of a price

chart can lead to Analysis Paralysis.

As a metaphor for portfolio management, imagine you are a

young person learning to drive. Safety (risk management) and

efficiency (profitability) require that you master many different

functions of the vehicle and be able to interpret in real time the

many challenges that await you on the roadways (markets).

Driving can be fun, but involves inherent risk, and the many

functions of the car can be overwhelming. As a young adult

you learn that every single time you get into your vehicle it is

not only sensible but potentially lifesaving to follow a "new

driver checklist". It could look like this:

• Adjust the seat and steering wheel positions to reach gas,

brake, clutch

Developing a Process

• Fasten seat belt

• Adjust mirrors and check for obstacles at the rear and

sides of the vehicle

• Check all lights are functional

• Engage brake when starting engine

• Signal before driving off

And, while driving there is a myriad of information to process

and react to in real-time, speed, distance from other cars,

navigation, fuel levels, gear shifting, etc…

The disciplined approach to driving makes one a more

responsible and importantly, a safer driver. We all have a

checklist to follow even though it may be largely subconscious

for experienced drivers.

Insights

AVOIDING ANALYSIS PARALYSIS

Tyler Wood, CMT

Managing Director

CMT Association

The same approach applies to using technical analysis for

investing in markets. A disciplined process that applies the

same checklist to every trade ensures we don’t make irrational

decisions based on our own fear or greed. A diversified blend

of technical indicators adds probabilistic rigor to identifying

trends and their reversals. As investors, we seek to participate

in the majority of a security’s price move while avoiding the

hazards of the financial markets. We seek an intelligent

framework in which to invest; one where we can make fast,

effective decisions based on objective information. A

technical analysis checklist might include the use of:

• Trend lines

• Moving averages

• Momentum analysis

• Volume analysis

• Price patterns

• Dow Theory

Sophisticated traders and portfolio managers develop their

individual technical checklist over time. They have faith in their

As a trader or investor, it is essential to

develop a process. Using the same

checklist or rules by which you

determine position entry and exit

creates a repeatable discipline for

trading that helps avoid behavioral

pitfalls. Technical Analysis provides a

broad toolkit of indicators that, when

used in combination, give the trader a

weight of the evidence perspective

that can be used across timeframes

and in any market regime.

(New York, United States)

“We are what we repeatedly do”

- Aristotle.

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