My Issue With Technical Analysis
I am going to have to choose my words carefully in this article, as I am sure it will be an unpopular one. I first want to say that TA clearly has a time and a place, and is excellent for certain aspects of creating your position. But I fear the idea of TA is far to simple and it fails to recognize the various factors of market price.
Where TA Works
The idea of Technical Analysis in theory is a magnificent one. The idea that people are consistent and that trends will repeat themselves. In some cases I would agree; TA is highly useful for determining the short term price action of a stock. RSI (Relative Strength Index) is a solid measure of whether a stock is over bought or over sold, and momentum indicators are a sound way to map out the length and intensity a security will move. Finding the price channel of a security is a highly effective way to map out price targets, you may use the Fib Retracement Lines. The three techniques mentioned above are backed by history and are all based around direction of price due to the days prior. I believe that if using TA in this manner, traders can be very successful, if they consider many other factors.
Where TA Doesn't Work
I believe there is far to much "wishy-washy", for the lack of a better term, ideas in TA. There is far to many people "Reading candle sticks", an ineffective method backed by absolutely nothing. Before you come for my head, understand; In finance, all securities fairly priced are backed by the numbers to support that price. They are backed by the previous momentum and are tied heavily to the overall market. Nothing in finance is just a random occurrence, somebody somewhere planned for, and made it happen. So the idea that a close and a open are going to effect the next day's price, is nonsense. The idea that patterns may happen again, is valid, but the environment which it is set up in must be the exact same. I believe there are far to many strategies that people claim to work, that don't. I believe it is far to difficult for any human to see a pattern in the midst of it happening, rather than after the fact.
In conclusion, I want to say I am not bashing on those who believe in TA, but I see too many inconsistencies with it. I believe when mapping momentum, planning entrance and exits, and looking into weather a security is overbought or undersold, TA can be highly effective. I would be cautious when looking into any strategy not backed by math, or that involves symbols. I believe all investors should learn the skills of TA, but should use them in a realistic sense. I see far to many influencers talking about unrealistic strategies, and only showing their success's.
Have a great day everyone!
Where TA Works
The idea of Technical Analysis in theory is a magnificent one. The idea that people are consistent and that trends will repeat themselves. In some cases I would agree; TA is highly useful for determining the short term price action of a stock. RSI (Relative Strength Index) is a solid measure of whether a stock is over bought or over sold, and momentum indicators are a sound way to map out the length and intensity a security will move. Finding the price channel of a security is a highly effective way to map out price targets, you may use the Fib Retracement Lines. The three techniques mentioned above are backed by history and are all based around direction of price due to the days prior. I believe that if using TA in this manner, traders can be very successful, if they consider many other factors.
Where TA Doesn't Work
I believe there is far to much "wishy-washy", for the lack of a better term, ideas in TA. There is far to many people "Reading candle sticks", an ineffective method backed by absolutely nothing. Before you come for my head, understand; In finance, all securities fairly priced are backed by the numbers to support that price. They are backed by the previous momentum and are tied heavily to the overall market. Nothing in finance is just a random occurrence, somebody somewhere planned for, and made it happen. So the idea that a close and a open are going to effect the next day's price, is nonsense. The idea that patterns may happen again, is valid, but the environment which it is set up in must be the exact same. I believe there are far to many strategies that people claim to work, that don't. I believe it is far to difficult for any human to see a pattern in the midst of it happening, rather than after the fact.
In conclusion, I want to say I am not bashing on those who believe in TA, but I see too many inconsistencies with it. I believe when mapping momentum, planning entrance and exits, and looking into weather a security is overbought or undersold, TA can be highly effective. I would be cautious when looking into any strategy not backed by math, or that involves symbols. I believe all investors should learn the skills of TA, but should use them in a realistic sense. I see far to many influencers talking about unrealistic strategies, and only showing their success's.
Have a great day everyone!
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