Does it make sense to talk about an ETF or index in terms of technical indicators?
Yes, it makes sense. Like Lagerbaer says, the usefulness of technical indicators can not be answered with a simple yes or no. Some people gain something from it, others do not. Aside from this, applying technical indicators (or any other form of technical analysis - like order flow) to instruments which are composed of other instruments, such as indexes (more accurately, a derivative of it), does make sense. There are many theories why this is the case, but personally i believe it is a mixture of self fulfilling prophecy, that the instruments the index is composed of (like the stocks in the S&P500) are traded in similar ways as the index (or rather a trade-able derivative of it like ETFs and futures), and the idea that TA just represents human emotion and interaction in trading. This is a very subjective topic, so take this with a grain of salt, but in contrast to JoeTaxpayer i believe that yields are not necessary in order to use TA successfully. As long as the given instrument is liquid enough, TA can be applied and used to gain an edge. On the other hand, to answer your second question, not all stocks in an index correlate all the time, and not all of them will move in sync with the index. With the disclaimer that I am not a technician, I'd answer yes, it does. SPY (for clarification, an ETF that reflects the S&P 500 index) has dividends, and earnings, therefore a P/E and dividend yield. It would follow that the tools technicians use, such as moving averages, support and resistance levels also apply.  Keep in mind, each and every year, one can take the S&P stocks and break them up, into quintiles or deciles based on return and show that not all stock move in unison. You can break up by industry as well which is what the SPDRs aim to do, and observe the movement of those sub-groups.  But, no, not all the stocks will perform the way the index is predicted to.  (Note - If a technician wishes to correct any key points here, you are welcome to add a note, hopefully, my answer was not biased)
"private investors that don't have the time or expertise for active investment.  This may be known as every private investor. An index fund ensures average returns. The bulk of active trading is done by private institutions with bucketloads of experts studying the markets and AI scraping every bit of data it can get (from the news, stock market, the weather reports, etc...). Because of that, to get above average returns an average percent of the time, singular private investors have to drastically beat the average large team of individuals/software. Now that index ETF are becoming so fashionable, could there be a tipping point at which the market signals that active investors send become so diluted that this ""index ETF parasitism"" collapses? How would this look like and would it affect only those who invest in index ETF or would it affect the stock market more generally? To make this question perhaps more on-topic: Is the fact (or presumption) that index ETF rely indirectly on active investment decisions by other market participants, as explained above, a known source of concern for personal investment? This is a well-covered topic. Some people think this will be an issue.   Others point out that it is a hard issue to bootstrap. I gravitate to this view. A small active market can support a large number of passive investors. If the number of active investors ever got too low, the gains & likelihood of gains that could be made from being an active investor would rise and generate more active investors. Private investing makes sense in a few cases. One example is ethics. Some people may not want to be invested, even indirectly, in certain companies." Getting the right diversity of investments helps buffer you from some of the short term market swings. If you need advice it's worth spending a small part of that money on a consultation with a financial adviser, who can talk to you about your goals, your time horizon, and your risk tolerance and recommend a good starting distribution. (Free advice from brokers risks being biased by their commissions.) Once you have that plan, uou need to decide how to execute it. Low-fee index funds are a good way to get started until you learn more, and for many of us that's all we ever need. Then you need to decide whether to invest it all at once or dollar-cost average. I've heard arguments both ways; DCA does mean you risk missing some immmediate gains, but also reduces your risk of buying at a temporary high and taking some immediate losses. For me DCA seemed to make sense, but that's another decision for you to make. From my 15 years of experience, no technical indicator actually ever works. Those teaching technical indicators are either mostly brokers or broker promoted so called technical analysts. And what you really lose in disciplined trading over longer period is the taxes and brokerages. That is why you will see that teachers involved in this field are mostly technical analysts because they can never make money in real markets and believe that they did not adhere to rules or it was an exception case and they are not ready to accept facts. The graph given above for coin flip is really very interesting and proves that every trade you enter has 50% probability of win and lose. Now when you remove the brokerage and taxes from win side of your game, you will always lose. That is why the Warren Buffets of the world are never technical analysts. In fact, they buy when all technical analysts fails. Holding a stock may give pain over longer period but still that is only way to really earn. Diversification is a good friend of all bulls. Another friend of bull is the fact that you can lose 100% but gain any much as 1000%. So if one can work in his limits and keep investing, he can surely make money. So, if you have to invest 100 grand in 10 stocks, but 10 grand in each and then one of the stocks will multiply 10 times in long term to take out cost and others will give profit too... 1-2 stocks will fail totally, 2-3 will remain there where they were, 2-3 will double and 2-3 will multiply 3-4 times. Investor can get approx 15% CAGR earning from stock markets... Cheers !!! The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts.  Generally higher highs and higher lows is considered an uptrend.  And lower lows and lower highs is considered a downtrend.  A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. A simple strategy for this is shown in the chart below:  I would be buying this stock when the price hits or gets very close to the trendline and then it bounces back above it. I would then have sold this stock once it has broken through below the trendline. This may also be an appropriate time if you were looking to short this stock. Other indicators could also be used in combination for additional confirmation of what is happening to the price. Another type of trader is called a bottom fisher. A bottom fisher would wait until a break above the downtrend line (second chart) and buy after confirmation of a higher high and possibly a higher low (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles, whether you prefer short term trading or longer term investing, and your appetite for risk. You can develop strategies using various indicators and then paper trade or backtest these strategies. You can also manually backtest a strategy in most charting packages. You can go back in time on the chart so that the right side of the chart shows a date in the past (say one year ago or 10 years ago), then you can click forward one day at a time (or one week at a time if using weekly charts). With your indicators on the chart you can do virtual trades to buy or sell whenever a signal is given as you move forward in time. This way you may be able to check years of data in a day to see if your strategy works. Whatever you do, you need to document your strategies in writing in a written trading or investment plan together with a risk management strategy. You should always follow the rules in your written plan to avoid you making decisions based on emotions. By backtesting or paper trading your strategies it will give you confidence that they will work over the long term.  There is a lot of work involved at the start, but once you have developed a documented strategy that has been thoroughly backtested, it will take you minimal time to successfully manage your investments. In my shorter term trading (positions held from a couple of days to a few weeks) I spend about half an hour per night to manage my trades and am up about 50% over the last 7 months. For my longer term investing (positions held from months to years) I spend about an hour per week and have been averaging over 25% over the last 4 years. Technical Analysis does work for those who have a documented plan, have approached it in a systematic way and use risk management to protect their existing and future capital. Most people who say that is doesn't work either have not used it themselves or have used it ad-hock without putting in the initial time and work to develop a documented and systematic approach to their trading or investing. "private investors that don't have the time or expertise for active investment.  This may be known as every private investor. An index fund ensures average returns. The bulk of active trading is done by private institutions with bucketloads of experts studying the markets and AI scraping every bit of data it can get (from the news, stock market, the weather reports, etc...). Because of that, to get above average returns an average percent of the time, singular private investors have to drastically beat the average large team of individuals/software. Now that index ETF are becoming so fashionable, could there be a tipping point at which the market signals that active investors send become so diluted that this ""index ETF parasitism"" collapses? How would this look like and would it affect only those who invest in index ETF or would it affect the stock market more generally? To make this question perhaps more on-topic: Is the fact (or presumption) that index ETF rely indirectly on active investment decisions by other market participants, as explained above, a known source of concern for personal investment? This is a well-covered topic. Some people think this will be an issue.   Others point out that it is a hard issue to bootstrap. I gravitate to this view. A small active market can support a large number of passive investors. If the number of active investors ever got too low, the gains & likelihood of gains that could be made from being an active investor would rise and generate more active investors. Private investing makes sense in a few cases. One example is ethics. Some people may not want to be invested, even indirectly, in certain companies." ETFs have caused many if not most stocks on the SP500 to become correlated.  I think at some point in the last couple of years, 90% of the SP500 were correlated to the index itself.  So you're going to see a lot of movement together of most stocks. "Below is just a little information on this topic from my small unique book ""The small stock trader"":  The most significant non-company-specific factor affecting stock price is the market sentiment, while the most significant company-specific factor is the earning power of the company. Perhaps it would be safe to say that technical analysis is more related to psychology/emotions, while fundamental analysis is more related to reason – that is why it is said that fundamental analysis tells you what to trade and technical analysis tells you when to trade. Thus, many stock traders use technical analysis as a timing tool for their entry and exit points. Technical analysis is more suitable for short-term trading and works best with large caps, for stock prices of large caps are more correlated with the general market, while small caps are more affected by company-specific news and speculation…: Perhaps small stock traders should not waste a lot of time on fundamental analysis; avoid overanalyzing the financial position, market position, and management of the focus companies. It is difficult to make wise trading decisions based only on fundamental analysis (company-specific news accounts for only about 25 percent of stock price fluctuations). There are only a few important figures and ratios to look at, such as: perhaps also: Furthermore, single ratios and figures do not tell much, so it is wise to use a few ratios and figures in combination. You should look at their trends and also compare them with the company’s main competitors and the industry average. Preferably, you want to see trend improvements in these above-mentioned figures and ratios, or at least some stability when the times are tough. Despite all the exotic names found in technical analysis, simply put, it is the study of supply and demand for the stock, in order to predict and follow the trend. Many stock traders claim stock price just represents the current supply and demand for that stock and moves to the greater side of the forces of supply and demand.  If you focus on a few simple small caps, perhaps you should just use the basic principles of technical analysis, such as:  I have no doubt that there are different ways to make money in the stock market. Some may succeed purely on the basis of technical analysis, some purely due to fundamental analysis, and others from a combination of these two like most of the great stock traders have done (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen). It is just a matter of finding out what best fits your personality.  I hope the above little information from my small unique book was a little helpful! Mika (author of ""The small stock trader"")" "Generally investing in index-tracking funds in the long term poses relatively low risk (compared to ""short term investment"", aka speculation). No-one says differently. However, it is a higher risk than money-market/savings/bonds. The reason for that is that the return is not guaranteed and loss is not limited. Here volatility plays part, as well as general market conditions (although the volatility risk also affects bonds at some level as well). While long term trend may be upwards, short term trend may be significantly different. Take as an example year 2008 for S&P500. If, by any chance, you needed to liquidate your investment in November 2008 after investing in November 1998 - you might have ended up with 0 gain (or even loss). Had you waited just another year (or liquidated a year earlier) - the result would be significantly different. That's the volatility risk. You don't invest indefinitely, even when you invest long term. At some point you'll have to liquidate your investment. Higher volatility means that there's a higher chance of downward spike just at that point of time killing your gains, even if the general trend over the period around that point of time was upward (as it was for S&P500, for example, for the period 1998-2014, with the significant downward spikes in 2003 and 2008). If you invest in major indexes, these kinds of risks are hard to avoid (as they're all tied together). So you need to diversify between different kinds of investments (bonds vs stocks, as the books ""parrot""), and/or different markets (not only US, but also foreign)."