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Technical analysis explained

Technical analysis tries to determine the future trends of markets or stocks, but its foundations have remained unchanged for the past century due to human psychology. This, says Julius Baer’s Head Technical Analyst Mensur Pocinci, is what makes the field so fascinating – even if what it boils down to is “looking at waves”.

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Key take-aways

  • Technical analysis is analysing signals from the market to make clients aware of short-term trends and to provide investment recommendations based on these signals.
  • Mensur finds technical analysis fascinating because the financial markets reflect human psychology.
  • Mensur’s top tip for investors is to align with the trends.

When Mensur Pocinci’s children are asked what their father does for a living, they reply that he looks at waves, and whether those waves rise, fall, or stay flat. It’s technical analysis perfectly boiled down, in that way that children do so well. What Julius Baer’s Head Technical Analysis actually does on a daily basis is complex, to say the least.

At its most basic, technical analysis is a method of evaluating securities by analysing market-derived data. It approaches a security from the charts, reading the trend and momentum of a market to determine whether the trend will continue or reverse. In other words, “technical analysis tries to capture the current state of financial markets and look slightly into the future to help investors digest financial market signals,” explains Mensur.
 

As an investor, you have to be humble and take the signs of the market as they come.

Mensur Pocinci

Spotting potential trends
To get a better grasp of the field, it helps to look at how it all started for Mensur. His journey into technical analysis began with the question “how can I understand the financial markets better?” He says he was good at maths at school – “it just made sense” – and he was fascinated by the ups and downs in financial markets. It was while completing a commercial apprenticeship that he first discovered technical analysis, and it was fascination at first sight. “I found a book in the library that had just two or three pages about technical analysis, but it made sense to me from the get-go. I was fortunate to turn this curiosity and fascination into my actual job.”

After gaining a Master of Financial Technical Analysis diploma, Mensur spent 15 years at Credit Suisse, first in portfolio management and then in technical analysis. In 2011, he moved to Julius Baer and has been here ever since. As a technical analyst, he believes that all information is accounted for in the stock’s price, so in the short term all that is needed to evaluate a stock or a market can be found in the signals from reading charts. This is where the “waves” come in: on a typical day, he can look at hundreds of charts and graphs, trying to determine the current trends and to spot potential trends.

In the last 100 years, only 4% of all listed stocks were responsible for net wealth creation in the US equity market. The other 96% matched treasury return deals.

Mensur Pocinci

The intersection between money, the economy, and investor psychology
Spend a few minutes talking to Mensur and it is clear that he is enthralled in his work. He describes it as very challenging, this intersection between money, the economy, and investor psychology. “Nobody knows the future,” he says. “As an investor, you have to be humble and take the signs of the market as they come.”

But what really interests him about technical analysis is investor psychology. “Human behaviour doesn’t change,” he says. “When it’s sunny and warm, people go for a swim in the lake. When it’s rainy, they don’t. It’s the same with investments.” This is why technical analysis has remained unchanged for centuries: financial markets are, in the short-term, nothing more than a reflection of the mood of investors, says Mensur.

Mensur’s work starts with getting a clear overview, because it is important to get the big picture right. For example, if the British pound has been declining for years, you need to be aware of this. His top tip for investors, therefore, is to align with the trends: “The trend is your friend,” he advises. He cites the example that since 1926, the strongest stocks have returned 15% per annum, while the weakest stocks have continued to decline by 1.4%.

He also recommends investors remain open-minded, because the future will never be exactly the same as what we have experienced in the past. Finally, says Mensur, investors should be very selective and cut losses early: “In the last 100 years, only 4% of all listed stocks were responsible for net wealth creation in the US equity market. The other 96% matched treasury return deals.”

Keeping a clear head
With such concentrated work to fill his days, Mensur needs to arrive at work with a clear head. To achieve this, he often commutes by bike. “You have to focus on the traffic,” he says, “so for a short period of time you have zero distractions and can recharge your brain.”

When he’s not at work, he enjoys spending time with his family. He says: “I’m passionate about my job, my family, and the fact that I’m in Switzerland. I was very lucky to be at the right place at the right time.”

His profession belies a relaxed character, and Mensur reveals that he likes to tell a joke from time to time. “You have to take everything with a pinch of salt,” he says. “You can’t take life too seriously.”

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Wealth Architects

This portrait is part of the ’Wealth Architects’ series in which we introduce you to our employees. All of them have practical tips and tricks in their area of expertise for you.

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