AAII Survey: Investors’ Views on Technical Analysis

One of the first columns I wrote for AAII over 20 years ago was on technical analysis. I had just joined AAII after graduating college and we needed coverage on the topic. At that moment, I became the de facto “expert” on technical analysis for the association. I immediately spent a lot of time learning about a subject that wasn’t covered at all in any of my college finance classes.

Twenty-plus years later, I still refer to stock charts when making buy and sell decisions even though I am a devoted value investor who relies heavily on fundamental analysis when evaluating a company. I don’t use technical analysis to identify investment opportunities. Instead, I use charts to identify potentially more opportune entry or exit points.

That is not to say that the way I use technical analysis is right or wrong. Instead, I use it in a way that works best for me. The ways investors can use technical analysis are countless.

AAII Weekly Survey Question

Technical analysis isn’t for everyone. Subscribers to the efficient market theory don’t think there is anything to be gained from technical analysis, or any other forms of analysis to gain additional insight into an investment. Others aren’t comfortable with the “technical” nature of charting and technical analysis, as they feel it is too complex for them.

With many reasons why investors use and don’t use technical analysis, we are curious to see how many of our readers use it as part of their own analysis routine. So, last week’s survey question asked:

How much do you use technical analysis as part of your overall investment analysis strategy?

Here are the results:

In all, 1,565 votes were cast.

I must admit, I was surprised by the percentage of readers that do not use any technical analysis at all—45%. I figured the percentage who used basic technical analysis—charts and simple technical indicators such as moving averages—would be higher than the 36% who voted that way.

Fourteen percent of readers use more advanced technical indicators as part of their investment analysis regimen while only 5% use technical trading systems to decide what to buy and when to sell.

Weekly Special Question

With such a high percentage of readers who do not use any form of technical analysis, I am glad we asked last week’s special follow-up question:

If you don’t use technical analysis, why don’t you?

In all, we received 146 responses.

The number one reason (14%) our readers cited for why they don’t use technical analysis is because they don’t think it works.

Interestingly, the reason mentioned second-most (13%) as to why our readers don’t use technical analysis is because they only invest in mutual funds or exchange-traded funds (ETFs). However, technical analysis is applicable across any security where there is price and/or volume data.

Coming in third (10%) as to why our readers don’t use technical analysis is because it is a waste of time, followed by the belief that technical analysis is too confusing (8%).

Here is a sampling of the responses from our readers as to why they don’t use technical analysis:

• “Technical analysis requires expertise that I don’t have and I don’t have the time to acquire it.”
• “[Technical analysis is] awfully complicated and the complexity has questionable benefit.”
• “Technical analysis is too short-term oriented, and not that reliable for my investment timeline.”
• “I consider myself an investor, not a trader.”
• “It’s more of a self-fulfilling prophecy for short-term returns and is also unreliable at market turns. I only look at long-term charts for support levels for entry and exit points.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.