There are many people and many opinions in the market.
There are those who criticize technical analysis, calling it superficial and even useless.
There are those who consider technical analysis (TA) the holy grail that can generate huge profits.
Today we will try to debunk 8 myths about technical analysis.
- 1.TA is only for short-term transactions or daily transactions.
- 2. Only individual traders use technical analysis.
- 3. TA has a low success rate.
- 4. Technical analysis is quick and easy.
- 5. Out-of-the-box technical analysis software can help traders make money easily.
- 6. Technical indicators can be applied to all markets.
- 7. Technical analysis can provide very accurate price predictions.
- 8. The winning percentage in technical analysis should be higher.
- Good luck!
1.TA is only for short-term transactions or daily transactions.
Many people think that TA is only suitable for short-term, computer-controlled trading, such as day trading and high-frequency trading.
The history of TA actually goes back long before computers were invented, and many famous and profitable traders use it for long-term trading.
Traders use technical analysis on all time frames, from minutes to weeks to months.
2. Only individual traders use technical analysis.
In fact, investment banks have dedicated trading teams that use technical analysis.
High-frequency trading, which covers a significant part of stock exchanges’ trading volume, relies heavily on technical concepts.
3. TA has a low success rate.
To discredit this myth all you have to do is read Masters of the Market: Interviews with Jack D’s Top Traders. Schwager that date to many traders who benefit solely from technical analysis.
Traders with many years of experience have been profiting from technical analysis for over a century.
4. Technical analysis is quick and easy.
Novice traders open trades based on a simple TA, but this is not enough to be profitable from a distance.
Success depends on continued study, practice, good money management, and discipline.
Technical analysis is just a tool, just a piece of the puzzle.
5. Out-of-the-box technical analysis software can help traders make money easily.
There are many advertisements on the Internet that promise to give you a program for a small amount that will do everything for you and bring you profit; in fact, this is a scam.
There are programs and indicators that can help you trade, but no program will give you guaranteed profits.
6. Technical indicators can be applied to all markets.
Most of the time, yes, TA can be applied in all markets, but there are exceptions.
Different asset classes move in their own way, with their own characteristics, and a trader must be able to adjust his TA for a particular asset.
Don’t make the mistake of applying technical indicators designed for one asset class to another.
7. Technical analysis can provide very accurate price predictions.
Beginning traders expect to see 100% accurate signals and accurate profit pricing, reversals, etc. of TA.
This is simply impossible.
Most of the time, TA helps to find the zone where the price can go, from where it can reverse and this is not a specific point, this is a zone and experienced traders understand it.
8. The winning percentage in technical analysis should be higher.
If the first trader out of 5 made 4 profitable trades and the second trader out of 5 made 1, who is more successful?
You need to get more information to give an answer, it may be that the first trader made $10 in 4 trades, but at the same time he lost $80 in one and then he will be in the red, and the second trader lost $40 in 4 trades, while in one transaction he earned $100.
The correct trading structure guarantees profitability even with a small number of winners.
It is not necessary to have many profitable trades, it is enough that the profit covers the losses and something else is left, and sometimes one trade is enough for this.
Technical analysis is not the holy grail, it will not give you 100% profit.
It does not suit everyone and you should study it before you understand whether it suits you or not.
You need to gain enough experience to learn how to use technical analysis correctly.
When used correctly, TA can give you a real shot at business success.