Technical analysis is where the trader will look at historical charts of prices and use these to help him look forward for future price movements including highs and lows. There is a long held view that the longer a market has been established, the more useful the technicals are. Players become more comfortable with fundamentals, information is more widely available and more and more players feel that the market is capable of coping with differing views.

The emissions market has recently been extolling the virtues of technical trading. This market breaks all of the above rules. It is new. It lacks depth. News comes in dribs and drabs, and when it does the whole market latches onto it and the market trades in a gappy, disparate way. So why do traders insist that technicals can work for them in this market? Perhaps because this market is so dependent upon regulatory risk, there are always some players who have a little more information. RWE has more allowances to trade than the whole of Spain and this means that their trading position will influence a market. If they continue to trade in an ordered fashion then these will be reflected in technicals, and those chartists good at reading the signs, can grab hold of the coattails of the larger more informed players.

It’s a good theory, and perhaps when the market is quiet and few new fundamentals are likely to come out, a good way of trading. But most during October through to December, when fundamentals matter rather more, will abandon the mystic art of technical trading and go back to raw fundamentals.