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Is Technical Analysis Useless?

Wed May 26 2021 14:36
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Nowadays, a new debate has arisen in the market about technical analysis. This debate is about the usefulness of technical analysis. Many traders think that technical analysis is vital, but there is a large section that thinks it is useless. Is it true that technical analysis is useless? What do you think about it? 

Do you think technical analysis is useless? There are many traders who think that technical analysis is very useful and they prefer it compared to fundamental analysis. But what is the actual reality of technical analysis? Don't worry if you are also confused about the application of technical analysis. Because here we will let you know everything about it.

Deep Dive Into Technical Analysis? 

We will tell you here why technical analysis is so important and why there are doubts about its benefits. Why there are so many questions raised against technical analysis. 

So here is complete data on technical analysis and why the whole market questions its existence. Because there are always two sides of opinions in the market and why a large portion claim that technical analysis is useless for their trading. 

What Is Technical Analysis? 

Technical analysis is the opposite of fundamental analysis and it needs some other research skills. In this type of analysis, we use the price and volume data of an asset from a previous time frame and then compare it to the current time frame. 

By doing this several times, we can find out the market sentiment or trend. Also, there are some technical indicators and signals that are used in technical analysis. These indicators help us to know whether an asset is going to move up or down. With the help of technical analysis, traders can find out the trend. 

Why It Is Important? 

Technical analysis has been used by traders for decades. Many traders are known for their technical analysis strategies and their success. Therefore, it is one of the most important approaches in the trading market. Technical analysis is an important step in the trading community. 

It is important because it reduces the time spent on manual analysis and calculations. It allows traders to calculate the historical data and compare it with the current data to make guesses about price action. 

Why Is There a Doubt About Technical Analysis? 

But the question is why technical analysis is doubted & why much of the market believes technical analysis is useless. To answer this question without knowing all sides of the market is not fair. We need to understand the various aspects involved in this statement. 

Why are there so many traders who claim that technical analysis is less important or useless to them? Also, we need to know the side of the story that claims technical analysis is important and useful. Knowing both sides of the story will help you get to the point of whether you should use technical analysis or not.  

Technical Analysis: Know The Limits & Advantages 

You know the basics of technical analysis and you know the various claims associated with it in the market. But you don't know about the limitations and the benefits. Knowing the limitations of something helps you figure out whether the thing is useful or useless. 

So, you need to follow the same approach in technical analysis. You will get to know the limitations and benefits of technical analysis. So here we have the complete details for you.

Limitations

Let's start with the limits you reach with technical analysis. If you use technical analysis or prefer to use it in your trading path. You will find these limits on your trading account or trading skill & here are some of these main limits of technical analysis.

Market Psychology 

Technical analysis is all about market psychology with great details. And we all don't know what the market psychology is or where it will be in the next few hours. This limits the use of technical analysis. Because a trader never knows which way the market will move.

Based On Market Interest 

Market interest is also an important factor that affects the whole scenario. If the market interest is going towards a bearish trend, you will get signs of it. But sometimes there is an unpredictable market interest.

More Human Intervention 

Technical analysis requires more human intervention. It is not completely based on the data, statistics and automation. You can see that the market psychology and market interest can affect the whole market. So it is more based on human intervention.

Unsure About Results 

There is no certainty about the results of technical analysis & sometimes the actual results are completely opposite to the predicted results. This is the reason why some traders claim that technical analysis is useless.

Inaccurate Indicators 

Using inappropriate indicators can lead to inaccurate results. Sometimes, using many technical indicators will give you different results and trading signals. This will confuse you about the use of technical analysis.

Advantages - Technical Analysis

From accuracy to flexibility, there are many benefits that technical analysis offers, and the following are some of the most important benefits.

Accuracy 

We cannot say that it is hundred percent accurate, but when compared to its counterparts, it is more accurate than others.

Based On Stats 

It is based on the historical data and statistics that have been recorded in history. So you can rely on this kind of analysis that is based on data.
Works With Psychology 
Psychology plays a role in the market and the best thing about technical analysis is that it tracks human psychology.

Applicable To Different Assets 

Technical analysis can be easily applied to different assets, from stocks to forex markets. You can apply it to different markets without any difficulty.

Things That Make Technical Analysis Doubtful 

There are some factors that make technical analysis doubtful. The following are these factors that make it dubious.

Myths 

Myths are always there to confuse new traders. If you also follow or believe any myths about technical analysis, then there will be more difficulties for you.

Complexity

Technical analysis is a complex process of analyzing historical data of a market or an asset. So if you are not able to perform such a complex process then you might face problems.

Wrong Indicators 

Choosing the wrong indicators for your technical analysis is a bad thing. It will make the technical analysis inaccurate.

100% Reliability 

Relying 100% on technical analysis for your trading decisions is never recommended.

No Experience 

Do not use technical analysis for your trading path if you do not have much experience in trading. Try to use it only if you have good knowledge.

Summary 

Being biased you cannot say that technical analysis is useless. But, it can become useless for you if you don't follow proper guidelines or you don't have much knowledge about it. Knowing the limitations of technical analysis is always recommended. 

Without proper information about the technical analysis, you cannot use it for trading. So the best thing is to prepare yourself or educate yourself before you start using technical analysis.
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