Technical analysis is astrology for men. Relying completely on technical analysis is being too rational and defies command $9. Completely ignoring technical analysis is acting too stupid if only for the fact that other people believe in technical analysis. The belief of others in technical analysis makes technical analysis a self-fulfilling prophecy. Take Fibonacci retracement levels. So many people believe in Fibonacci retracement levels that they become a self fulfilling prophecy. It would be stupid to ignore them.
Nevertheless, technical analysis doesn’t mean a thing. Technical analysis is just a variable that you have to use to calculate the probability of each of the three scenarios – up, down and sideways – as commanded by command $4.
Command $10 is: use as few technical indicators as possible. There is a Bayesian rule that basically states the following: the more variables a model has, the better the model can explain the present situation, but the worse the model can foresee the future. (As per command $3 we don’t predict the future, but we foresee it.)
Our Bayesian network model to calculate how probable the up, down and sideways scenarios are, only uses 5 variables. Our Bayesian network model to select the stock to expose us as long as possible to risk – per command $6 – only uses 13 variables. Our Bayesian network model to time when we enter a day trade only uses 19 variables.