The most important takeaway is that as a value based investor you definitely do not have to memorize various technical stock price patterns, their significance or probability of correctly predicting future price moves. However, armed with a short checklist of commonly used gauges, such as the moving average and Bollinger bands, some of the worst timed investment decisions can be avoided.

Technical Analysis

…is the study of past market price movements in the hope of predicting future price movements.

Once you have determined that a stock is cheap and its cheapness is durable (profits and growth rates are durable and reliable), a quick TA check can make you avoid simple mistakes.For instance, it can prevent you from buying a stock that just recently spiked uncharacteristically by 25% and is at risk of falling back toward trend or buying a stock trending below a falling 200-day moving average while simultaneously reaching the upper end of a Bollinger range.

Gauging the eagerness of buyers

All the various price patterns are trying to measure the eagerness of buyers and sellers.

Does the stock exhibit a pattern signaling that other investors are catching onto the same story as you? Is the stock making higher highs and higher lows while trending upward? Then try to buy the shares you fundamentally want at the lower end of the rising price trend channel.

Does the share price consistently rebound at the lower end of the Bollinger band? If so, try to anticipate a level where you get to buy the stock cheaper than today.

Does the price pattern align with and  confirm your fundamental investment thesis regarding profits and P/E ratios?

The 200 DMA and Bollinger bands can improve your timing

Personally, I just glance at the 200-day moving average (a share price above the 200 dma is positive), the Bollinger band (toward the bottom line is positive), as well as the price range (are there certain levels where the stock price often bottoms out or peaks?). If so, act accordingly without becoming too greedy and hoping for an unreasonably low entry price).

TA and macro are mostly about timing, i.e., buying what you’re buying regardless, but at a slightly more opportune time (day, week).

Macroeconomics and Technical Analysis are not decisive factors for a value based investment. However, they can act as a slight help (“tailwind”) or hindrance (“headwind”), regarding the ease or likelihood of a company reaching a certain level of sales, profits, returns and valuation multiple.

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In Week 4 of The Investing Course you will learn how to time your investments using several tools, including Technical Analysis.

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