Value of Technical Analysis

Why I Believe in Technical Analysis

Professionally, I’ve been using technical analysis (TA) since the 1990s. I believe in its value. That said, I know it’s not for everyone, and that’s okay.

So, what is technical analysis? At its core, it’s the study of price. And price is simply a function of supply and demand. Supply and demand, in turn, are driven by human behavior, which, for the most part, hasn’t changed much over time. I’d even argue that technical analysis is part of a broader discipline: behavioral analysis.

Why do I use TA? Here are five quick reasons. Some apply to everyone. Others are especially relevant for professional money managers.

1. Charts provide context. This one applies to everyone. A chart gives you historical perspective. It helps you see where a market or part of the economy has been, and often cuts through the noise. Take long-term interest rates or the unemployment rate, for example. If you're only listening to headlines or following social media, things might seem urgent or dramatic. But a multi-decade chart often tells a calmer, clearer story.

2. TA focuses on what is, not what should be. Technical analysis offers a more objective lens. It helps me—and many other investors—see what the market is actually doing, rather than what we think it should be doing. Personally, I’ve had plenty of times when I believed the market should behave differently. But it didn’t. And that disconnect is valuable. It raises a critical question: Do I know something the market doesn’t? Or—more likely—does the market know something I don’t? Either way, it calls for further analysis.

3. TA provides a decision-making framework. This is especially important for many money managers. Whether your approach is long-term or short-term, technical analysis can help guide investment decisions. Even for long-term investors with a solid understanding of intrinsic value, TA can provide tactical insights, like when to execute trades or adjust positions.

4. It’s a tool for risk management. One of the core principles of successful investing is simple: cut your losses short and let your winners run. TA helps enforce that discipline.

5. It helps identify trends. One of the key outputs of technical analysis is trend identification—the idea that an object in motion tends to stay in motion, at least in the short run. Of course, longer-term trends can and do change. But in the interim, recognizing directional moves can provide an edge, especially when managing portfolios at scale.

Bottom line: For many professional money managers, the value of technical analysis is clear. For individual investors—or advisors working with clients—charts can be powerful tools for maintaining perspective. And in a world full of market noise, that perspective can help investors stay invested, stay diversified, and stay disciplined.