Investing with Volume Analysis: Two Perspectives of Market Analysis
- Apr 11, 2011
- "This is one of the most important points I've had to learn. For me, at least, 'why' is the most expensive and least valuable information. When you get 'why' wrong (and act accordingly), you lose lots of money. You only can know 'why' for sure after the fact (when it is useless). You gotta learn to live with the reality that there are things that are beyond the individual's ken. The search for 'why,' whether right or wrong, can just as easily lead you to irrelevancies, or, worse yet, to valid data that will not impact on the market. The best analog is arguing with your wife. Being right is often totally valueless if not counterproductive."
- —Mike Epstein (1931–2009) Quoted on June 21, 2006
Building a Firm Foundation
We start our journey by getting acquainted with the basics, the fundamentals of technical analysis. These fundamentals are so self-evident that they are often overlooked. However, a rock-solid foundation is critical to understanding the volume analysis perspective. Your ability to succeed ultimately depends on your ability to discern. Every day, causal investors attempt to employ complicated indicators in their analyses of the market and individual securities; however, they generally do not fully understand what information the indicators are designed to reveal. When the markets turn and investors' indicators no longer work, they're at a loss.
Even when these investors experience short-term success, they are often building on sand because blind success reinforces poor practices. The difference between being wise and foolish is neither information nor intellect, but a depth of understanding. A thorough understanding of the basics enables investors to develop the necessary perspectives to build a cause for action. Building a cause for action is what analysis is all about.
As one of these investors yourself, a solid understanding of the basics is the bedrock that builds your perspective, shapes your beliefs, and influences your ideas. You can either seek to build a perspective on a solid foundation or be consumed with the moment—continually seeking the hottest tip, trying out the latest indicator, or reading about the newest five-step program to success. You can continue searching for the Holy Grail of market success or you can develop the understanding required to start believing in your own ability to discern, and thereby, gauge the market.