#785 - Trade Without Technical Analysis First

The "Daily Call" From Option Alpha

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about why you should trade without technical analysis first. I’m a big proponent of using technical analysis, but I think that technical analysis is a secondary type of analysis that you should do when you’re trading. I do not think it’s a primary source of analysis. And what I mean by this is that a lot of people when they start trading, they get into technical analysis and it’s very easy to do because it’s visual, it makes sense, it’s intuitive, you use all these technical indicators, they tell you when to buy and when to sell and this is all great, but what we found in our research is that technical analysis is not as successful as just a high probability options trade. What I would rather see people do is I would rather see people use technical analysis as a secondary level of analysis and the primary level of analysis is going to be the probability of the option strategy winning, the balance of the portfolio, the position size, the distribution of tickers in their portfolio. You do those things first and you should be well on your way to a successful trading system.

You can then layer in technical analysis to help tilt and skew your portfolio and positions as needed, but in my opinion, too many people lean on technical analysis completely and what we found is that some of the best indicators might be just 60%, 65% accurate versus an options trading strategy could easily be created with a 70%, 75% probability of success. Although people love technical analysis, (and I like to use technical analysis myself as a means to tilt and skew positions) it should not be the primary source of analysis for your positions. You should use technical analysis as a secondary confirming metric potentially when you start to analyze trades and positions. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.