Just like trading is not a field of interest for everyone, similarly all traders are not meant to deal with Technical Analysis. It is basically the technique where past trading patterns are analysed to predict the future course of action, like how such and such trade is supposed to perform in this manner under such and such market conditions. But, once you develop an interest in this field, there is no coming back as its enticing nature will keep you on your toes to maintain your curiosity about the market. It helps these traders understand and predict price movements in the financial markets.
With the knowledge of technical analysis, comes the responsibility to know it to such an extent that you can differentiate between what is legitimate and what is not. Myths related to Technical Analysis also come under this category which are taking rounds in the market and confusing the trading enthusiasts that they are not sure about it anymore. Hence, our SEBI-Registered Research Analyst, Ashutosh Bhardwaj is debunking the myths about Technical Analysis. Here are the top 8 myths:
Myth No. 1: It is a Form of Astrology
Just because it analyses past trends and patterns to predict future trends, it doesn’t mean it is a branch of astrology or belongs to a similar sect. Its lack of certainty about future trends makes it a relatable branch of trading as it is more about providing a probabilistic framework to evaluate the direction, duration, and strength of price movements on the basis of logic and substantiated evidence.
Myth No. 2: It is Only for Short-Term Traders
This is not entirely true. Because Technical Analysis is all about analysing past patterns and trends and then laying down a pattern plan. It is often associated with short-term trading, but it can also be applied to various timeframes. Depending on your goal and preferences, Technical Analysis can be used by traders and investors for short-term, medium-term, or long-term strategies. SEBI-Registered Research Analysts can help you understand it better.
Myth 3: It Works Only in Hindsight
It simply means that Technical Analysis can only justify what has already happened, but not what will happen next. Especially those people who believe that past data cannot be used to predict future price changes and market conditions. So it doesn’t assume that future price changes will happen just like in the past, it rather analyses more than one (or fixed) indicator or pattern.
Myth 4: It is Easy
Just because it has a past analysis of price movement and market conditions, it doesn’t mean anybody can do it just right. It needs constant effort and the right fit of the analogy with a proven track of the best ROI. You definitely need effort and skill to master the art of Technical Analysis. You must know that it is not a mechanical or automatic method that guarantees success or removes the chances of failure, it rather is an analytical method that needs some experience, a sense of judgment, and proper market knowledge.
Myth 5: Historical Patterns Always Repeat
The past data, information, patterns, and all don’t have to repeat themselves, rather provide some valuable insights that can be utilised to come to a decision regarding the future course of action. It is a universal knowledge that the market and its dynamics change with time, and new factors have to be considered the new price movement and market condition, keeping them in mind. Being a trader or investor you have to be adaptable and be ready for any situation.
Myth 6: It is Obsolete
Some people may argue that the Technical Analysis technique has become obsolete or futile and is not as effective as upcoming technologies. In addition to that, it cannot cope with the new market regulations. On the contrary, it is no rigid method bound by time or space, but rather a flexible technique that can adapt to different instruments, markets, and time frames.
Myth 7: It Doesn’t Include Fundamental Factors
Other than paying attention to price and volume data, trading experts use a well-tested mixed bag of technical and fundamental analysis to arrive at a well-informed decision. It is a must for the technical analyst to understand the market in broader aspects as well as know company fundamentals in order to enhance the effectiveness of Technical Analysis.
Myth 8: It is About Looking at Charts Only
Quite the opposite actually! Technical Analysis is more about reading and analysing charts, studying market patterns of price movement, looking at indicators for additional information, noticing trends, and looking at trading volume, to name a few. Moreover, you have to understand the market psychology, in order to interpret price action by incorporating various technical indicators.
Conclusion Trading Analysis is the technique where you need to be in constant touch with it to understand it better and master it in due time. Hopefully, our SEBI-Certified Research Analyst at Logical Nivesh has been able to resolve all your queries and give you a better grasp of things. To learn more about the mechanism, you can also enrol in our online classes for beginners as well as professionals.
