For some traders, technical analysis is an irrelevant study of charts and patterns, while for others, it is the core part of trading strategy. And with ground split into two, the confusion is double for the new entrants who are still learning the basic of market and trading.
Needless to say, with people voicing their opinions with or against technical analysis, there lines a range of myths about this security analysis method.
Here we bust 6 such technical analysis myths:
1. It’s just about charts
There are people who simply misunderstand the already-misrepresented technical analysis. It’s much more than just about charts. This methodology is about understanding the psychology of the market in an efficient manner to make informed guesses about future price movements.
2. It’s just for day trading
No, technical analysis isn’t just to meet the short-term goals; it isn’t just for day trading. Back in the days, even when without software and digital tools, analysts and experts would rely on this methodology, taking days and weeks to plot graphs and charts.
3. It’s just for the individual traders
Large hedge fund and corporate banks extensively rely on technical analysis to make right calls in their High-Frequency Trading (HFT). So it’s not true that technical analysis is just for the individual traders.
4. It has a low success rate
Take all the successful traders for example, and majority of them depends on technical analysis for optimum return. Read the interviews of experts and pros who advice to keep strict eyes on the technical factors and this myth debunks itself.
5. It is easy
Neither is technical analysis easy, not is it quick—even with the best of software. You need to have in-depth knowledge about the market trends to discover new patterns; you also need thorough skills for capital allocation and money management.
6. It guarantees easy money
Even though the algorithm is taking over the trading scene, nothing here is assured and 100 percent risk averted. This method provides predictions – which are not fully foolproof given the high market fluctuations – and not offers exact numbers. So yes, “easy money” isn’t guaranteed.
These are 6 biggest myths about technical analysis. It is one of the oldest trading concepts that has advanced by leap and bound in recent times with the emergence of better digital tools. If used well, it can be traders’ core strategy that delivers high-flying outcome.