I recently heard a young, but experienced, option trader dissing technical analysis and predicting that within five years, virtually all traders would be using statistics and probability analysis instead.
Technical analysis - and in my case basic technical analysis - is only one factor I use to time both my short term cash-secured put trades (the bulk of my trades) and my long term investments.
But it's an important factor and one that I've seen bear fruit time and time again.
Even a generic put writing strategy can benefit from the most rudimentary of technical analysis - i.e. sell puts at support, buy them back at resistance.
(There's much more involved in successfully writing puts, of course, but you get the point.)
When incorporated into a larger trading methodology, however, basic technical analysis can further stack the deck in one's favor - and sometimes produce some pretty sizzling results.
Case in point, I recently entered, exited early, re-entered, and then re-exited early once more a trade (technically, two trades) on Toll Brothers (NYSE:TOL) which resulted in me more than doubling my original maximum annualized gains, getting to ring the register twice on a trade, and still freeing up my capital more than a month early.
The point of this brief post is that basic technical analysis is a very useful instrument for both traders and investors alike.
And to really drive that point home, you can check out the full details of the two technically timed TOL trades here.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I don't currently have any open positions in TOL, but would consider selling more puts if the stock trades back down into the los $30s.