Education focused on technical analysis better enables financial advisors to assess sophisticated investment strategies grounded in rules-based parameters.
When it comes to actively managed investment portfolios, expertise in fundamental analysis isn’t enough to be successful. A substantial grounding in technical analysis is also important.
An article in U.S. News and World Report noted the growing importance of understanding technical analysis for financial advisors:
“Technical analysis is covered briefly in financial advisor and broker licensing exams. But understanding the critical role it plays in today’s public markets takes further investigation.
“In the past, advisors could get away with dismissing charting as some sort of mystical practice. But it’s becoming more apparent that technical analysis, or the art and science of making investment decisions based on price-chart patterns, is driving markets like never before.
“Algorithmic traders, hedge funds and other new players that dominate day-to-day buying and selling activity are employing a heavy dose of price-trend analysis. So, in minding your clients’ assets, you can either get in sync with what those market forces are watching, or you can put your clients at their mercy. You don’t want to be the last one in the know, but the good news is you don’t have to be.”
According to the CMT Association, technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand.
For financial advisors offering actively managed portfolios to their clients—whether primarily managing investments themselves or leveraging the expertise of a third-party manager—a strong grasp of both fundamental and technical analysis enhances their ability to evaluate modern, sophisticated, rules-based strategies. This knowledge is particularly important when assessing the strategic offerings of various third-party investment firms.
Fortunately, current and aspiring financial advisors can take advantage of various educational programs centered around technical analysis. This article will focus on the Chartered Market Technician (CMT) credential offered by the CMT Association and Golden Gate University’s technical analysis concentration in its Master of Science (MS) in Finance program.
The philosophy behind the CMT program
The Chartered Market Technician (CMT) credential, offered by the CMT Association in New York City, is the global designation for practitioners of technical analysis. The credential is awarded to those who demonstrate mastery of a core body of knowledge of investment risk in portfolio management settings. The program consists of three comprehensive study and examination levels.
The CMT Association describes its mission as follows:
“The Chartered Market Technician (CMT) designation marks the highest education within the discipline and is the preeminent designation for practitioners of technical analysis worldwide. Our market philosophy is grounded in behavioral economics and extends beyond classical pattern recognition techniques to include quantitative approaches to market research and rules-based trading system design and testing. Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand.”
David Lundgren, CMT, CFA, member of the CMT Association’s board of directors, and the founder and chief strategist at MOTR Capital Management & Research, shared his insights into the role and benefits of technical analysis:
“Technical analysis is an expression of the opinion of the market with respect to the fundamentals of the underlying security. If fundamentals are positive, then the security over time will trend higher. If the fundamentals are negative, the security over time will trend negatively. So, at the end of the day, I’d like to think that the market is the best fundamental analyst in the business, which is why it’s so hard to beat.
“The whole premise is to not necessarily change who you are as a fundamental investor but to add the market’s opinion to your workflow so that you can incorporate the opinion of one of the smartest investors in the business.
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