Yahoo Finance has the closing price of SPY on Oct 24th as 141.02. Is that a fact? Well that's how Yahoo Finance observed it, but Google Finance saw it to be 141.05. So why the difference, who was right, and why are we talking about this?

Well, let me diverge a little to particle physics. You probably have heard about Heisenberg's Uncertainty Principle at some point in your life. It basically states that you cannot know the location and momentum of a point particle like an electron simultaneously. The commonly perceived model that we have of an electron neatly spinning around a nucleus like the Earth around the Sun is completely myth. The shells that you learned in chemistry class, are volumes of probability densities, not actual flight paths. As you can see in the picture above, each red dot is an observation point and can lie in the shell or out of the shell and has literally any possibility, but limited probabilities. The electron is bounced around between the attractive and repulsive forces between the nucleus and the electron itself creating a violent unpredictable path inside this field. I will post more on this later, but for now we leave it at this.

Aggregate market prices for equities behave a lot like this electron. Market prices really only exist in our head alone. There is no true or absolute price for anything, let alone a non tangible product like an equity. Like a point particle, a singularly stated price is really just a point of reference and several sales above and below the sale are occurring, for our practical purposes simultaneously. It is only an individual point of observation that makes it singular. Additionally, It is the fact that price and momentum cannot be known together that the market functions and exists and has value.

I think this is key to understanding the value of technical analysis. Technical analysis offers no absolute buy or sell signals, because neither price nor momentum are absolute nor perfectly orbital/cyclical. It offers us statistical probability for a particular price or a certain momentum in a generally calculable amount of time.

Probability leads the successful trader to profit. For example, I could offer out 100 shares of SPY at $500 / share. There is a remote possibility that someone will buy it at that price for some highly random, highly unlikely scenario. But being so unlikely, I would not concentrate my time on such an offer. I concentrate on the probable, not the possible.

I love Bollinger Bands for this reason. It is a self-adjusting, moving probability field with pricing generally bouncing between the upper and lower bands, offering a statistical probability of the prices ranges that will occur within a short time frame. Oscillators quantify the equity price's kinetic energy as the oscillator value passes through its signal reference. They simultaneously show the equity price's potential energy by the oscillator value's distance from the center. Fibonacci lines act as external resistance similar to a semi-permeable wall that can only be crossed with significant force, but that once passed then become a semi-permeable floor that will support a price unless too much downward force is applied. Elliot Wave theory can be compared to a map of where these floors and walls tend to exist.

It is NOT in using these techniques separately that any value is achieved, but in the use of all of them that we can narrow down the probability of future prices for an equity. Individual indicators like MACD, STO, RSI, Williams, candlesticks, Bollinger bands, and moving averages, etc. can and will fail from time to time, but in using them together, a bigger picture is painted and probable outcomes are formed.

Well, let me diverge a little to particle physics. You probably have heard about Heisenberg's Uncertainty Principle at some point in your life. It basically states that you cannot know the location and momentum of a point particle like an electron simultaneously. The commonly perceived model that we have of an electron neatly spinning around a nucleus like the Earth around the Sun is completely myth. The shells that you learned in chemistry class, are volumes of probability densities, not actual flight paths. As you can see in the picture above, each red dot is an observation point and can lie in the shell or out of the shell and has literally any possibility, but limited probabilities. The electron is bounced around between the attractive and repulsive forces between the nucleus and the electron itself creating a violent unpredictable path inside this field. I will post more on this later, but for now we leave it at this.

Aggregate market prices for equities behave a lot like this electron. Market prices really only exist in our head alone. There is no true or absolute price for anything, let alone a non tangible product like an equity. Like a point particle, a singularly stated price is really just a point of reference and several sales above and below the sale are occurring, for our practical purposes simultaneously. It is only an individual point of observation that makes it singular. Additionally, It is the fact that price and momentum cannot be known together that the market functions and exists and has value.

I think this is key to understanding the value of technical analysis. Technical analysis offers no absolute buy or sell signals, because neither price nor momentum are absolute nor perfectly orbital/cyclical. It offers us statistical probability for a particular price or a certain momentum in a generally calculable amount of time.

Probability leads the successful trader to profit. For example, I could offer out 100 shares of SPY at $500 / share. There is a remote possibility that someone will buy it at that price for some highly random, highly unlikely scenario. But being so unlikely, I would not concentrate my time on such an offer. I concentrate on the probable, not the possible.

I love Bollinger Bands for this reason. It is a self-adjusting, moving probability field with pricing generally bouncing between the upper and lower bands, offering a statistical probability of the prices ranges that will occur within a short time frame. Oscillators quantify the equity price's kinetic energy as the oscillator value passes through its signal reference. They simultaneously show the equity price's potential energy by the oscillator value's distance from the center. Fibonacci lines act as external resistance similar to a semi-permeable wall that can only be crossed with significant force, but that once passed then become a semi-permeable floor that will support a price unless too much downward force is applied. Elliot Wave theory can be compared to a map of where these floors and walls tend to exist.

It is NOT in using these techniques separately that any value is achieved, but in the use of all of them that we can narrow down the probability of future prices for an equity. Individual indicators like MACD, STO, RSI, Williams, candlesticks, Bollinger bands, and moving averages, etc. can and will fail from time to time, but in using them together, a bigger picture is painted and probable outcomes are formed.