Technical analysis: Don’t get it twisted!

When you first hear the phrase “technical analysis” you might assume it’s about tech stocks because it has the word tech in it — You’d be wrong. If you said it’s related to studying price movement charts (in EVERY sector, not just tech), congratulations, you’re right. . . . A great example of technical analysis is in the video tweet by Jamison Gaddy above! (Oh, bonus: In his video you’ll also get to hear what he thinks about buying or avoiding Snapchat stock which trades as SNAP on the New York Stock Exchange.)

Don’t get technical analysis and technology stocks confused due to the word tech. THEY’RE DIFFERENT.

The fact that SNAP is a tech stock is pure coincidence and has nothing to do with technical analysis. Technical analysis is done on EVERY stock in EVERY SECTOR, for example, “airlines”, “major oils”, “apparel and footwear”, “paper and forest”, etc., etc.

In his video tweet above, Mr. Gaddy is doing technical analysis (click here for Wikipedia’s explanation of technical analysis) on the possible future movements and the price history of SNAP stock, a stock which, coincidentally, is in the technology sector. True to technical analysis, Mr. Gaddy is NOT analyzing any technology used by Snap Inc, and he’s not analyzing the way Snap Inc is run as a business — again, that’s not what technical analysis is. He’s also not analyzing the tech sector . . . If you’ve never worked on Wall Street, you’re to be forgiven if you assumed technical analysis was “the study of tech stocks in Silicon Valley” just by how it sounds, but you’d still be wrong, so I’m letting you know technical analysis has NEVER BEEN THAT. Look at the Wikipedia page above and it’ll clarify how a technical analyst is different from a fundamental analyst. I worked on Wall Street for nearly a decade in equity research and distribution. Most of the bulge-bracket investment banks have entire departments solely dedicated to technical analysis. During my days on Wall Street, I remember having to interact with technical analysts daily, although in a very easy, structured way.

So if you didn’t know, well, now you do! In a nutshell: The discipline has nothing to do with technology. It never has — it just has an unfortunate name.

Here’s another difference. Fundamental analysts (most have MBAs and the CFA title) are required to visit the companies they follow at least 4 times per year. Part of their job is to study how a specific business is run. So if a company is in Idaho, guess what? Joe or Jane Fundamental Analyst would need to fly to Idaho. . . . In contrast: Technical analysts aren’t asked to fly anywhere — they’re analyzing charts all day.

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