Win with "Rational Analysis"

01/25/2012 4:30 pm EST

Focus: STRATEGIES

John Bollinger

President and Founder, Bollinger Capital Management

"Rational analysis," or the blending of technical and fundamental techniques, can provide a unique edge in the markets, says John Bollinger, discussing how he has combined the two.

We’re talking today with John Bollinger about the overlap between fundamental and technical analysis.  John, give us your views on that.

I’ve always believed that there was a synergy between the technical approach and the fundamental approach.  Twenty-five years ago I coined the term “rational analysis” to be the juncture of the sets of technical and fundamental analysis. 

Of course, over the years, our analytical environment has evolved, and we now have quantitative analysis, and we now have behavioral finance. So the modern definition of rational analysis would incorporate elements of quantitative and behavioral work, as well as the classic fundamental and technical work. 

Indeed much of what we see in quantitative analysis now and much of what we see in behavioral finance now were elements of technical analysis in past decades. 

I think that by adding these pieces together, one can produce a more synergistic approach, especially in these very volatile markets. I think it can give a little bit of an extra handle on the markets, especially in these times of great uncertainty.

How do you use volume indicators?

Volume indicators have always been one of our favorite tools. One of the very first seminars that I ever gave was on volume indicators. 

I think they’re very important because they get right to the heart of the supply/demand idea. You take a Web site like BBands.com, which is our main analytical Web site, and fully a quarter of the indicators that are available there are volume indicators, some of which are unique to us. That’s the level of importance that we put on it. 

I think that with the much greater degree of machine trading and algorithmic trading that we see in today’s markets, these indicators have gotten a little bit harder to read, and people have kind of pushed them aside and fewer people are following them. 

I think that’s a tremendous advantage to the typical trader, because you have basically an area that’s neglected.  People aren’t following volume there, they are not following these supply demand indicators, and that’s why on our Web sites we put such a heavy emphasis on devoting a lot of time and space and capability to these volume indicators.

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