- What is technical analysis?
- Why is technical analysis even a thing?
- What is the argument all about?
- Does technical analysis work?
- What do you think?
What is technical analysis?
So technical analysis or TA is a type of analysis that’s used by traders that participate in the financial markets.
In technical analysis, all that traders look at are the price charts and that’s it, nothing else.
In fundamental analysis, for example, investors look at balance sheets, financial reports, economic data, and whatnot. They try to forecast price movement by looking at such pieces of information.
In technical analysis, it’s just one thing, price. Traders look at the price charts and they try to forecast how it will price in the coming trading sessions.
But now technical in itself also has a couple of subsections. There are traders that trade only price action, while some use indicators to forecast price movement.
No matter what technical analysis style you use, it all boils down to one simple thing, and that’s the price of the financial asset.
Why is technical analysis even a thing?
Tell me one thing, who participates in the financial markets? Of course, it’s traders, investors, and other people right.
In the end, it’s just people coming to a market, with their biases, and they make moves in the markets on the basis of the biases that they form by carrying out some type of analysis.
You might say that there are algorithms too, but aren’t these just computer programs written by people only after all?
Now, technical analysis is a thing because market participants are all humans, and wherever humans go, they leave a trail behind.
I’m not trying to sound like a detective here but I actually mean it, people that participate in the financial markets, leave behind some trails.
What are these trails? These are the patterns that we get on our price charts. It could be any type of pattern, candlestick pattern, chart pattern, etc.
I need to add one more thing here, in the financial markets, there is always a competition going on between buyers and sellers, and from time to time, there is a shift in power between the two. This is something that you might know as a shift in demand and supply.
Now, the main reason why technical analysis is a thing is to take advantage of these trails, to find some recurring patterns, and capitalize on them.
What’s better than to look at the price only, how it moved in the past, to ultimately know how it may move in the future too?
What is the argument all about?
So you might ask, what argument am I talking about? It’s whether technical analysis works or doesn’t work. Well, let’s try and understand why we have this argument in the first place.
1. Technical analysis isn’t easy peasy
I’ll tell you straight away, technical analysis is not as easy as many people show it to be. It’s actually a difficult thing to master.
Now, I’m sure that many people try technical analysis and have failed to make the most out of it, and these are the very people that go on to say that technical analysis doesn’t work and that it’s dead.
So technical analysis is both an art and a science.
When I say that it is a science, I mean that you can make definite rules around it, and use it to trade.
But, when I say that it’s an art, I mean that at times. You will need to look beyond those rules and make decisions based on your judgments and this is where people fail to make the most out of it.
If this was so easy and all that people had to do was to follow some rules and mint money in the markets then there will come a point when everyone is doing it and it will just stop working.
Did I say stop working? It means that it does work right? You need to wait till the end to know that.
2. Technical analysis is not a holy grail
So if you’ve ever thought that you’d buy a strategy from an online forex guru, learn it, use it, and make money all the time, then you are so wrong.
No matter what type of analysis a strategy is based on, technical analysis or even fundamental analysis, you will not always win in the financial markets.
If you are looking for a strategy with a 100% win rate then you are just chasing a holy grail that just doesn’t exist and you’re just wasting your time, energy, efforts, and money too.
Again, people start using technical analysis with this holy grail mindset, they face losses, they quit and start saying that technical analysis doesn’t work and that it’s dead.
If you are looking to get into technical analysis trading, then you should know that these strategies that we use, will fail at times.
Yes, you will have to incur losses and don’t worry, if you do things right then you will make money too.
But you need to do this the right way, with the right mindset, and then maybe you’ll have a shot at success.
3. Technical analysis is relatively simple
Alright so in the first point I said that technical analysis is not easy and now I’m saying that it is simple, why? Well, there’s a difference between easy and simple.
When I say that technical analysis is simple, I say that because, in this, we are just looking at one thing, price charts.
Now, with other types of analysis, take the fundamental analysis, for example, there are so many things that you’ll need to look at, and I feel, it’s just making things complicated and the opposite of simple.
Now, the very fact that technical analysis is relatively simpler, people tend to argue more against it. But why? Why don’t they just use the simple way?
The reason is that we as humans have the tendency of making things complicated unnecessarily or we just lean more towards a thing that appears to be complicated.
It might seem stupid but that’s who we are. Even I have been guilty of doing that and it’s fine.
But what’s not fine is that even though the simple thing works, and may work better than the complicated thing at times, people still won’t give credit to it.
Does technical analysis work?
Now that you know what technical analysis is, why it is even a thing, and why do people say that it doesn’t work, it’s now time for the big answer.
I might be biased here, but yes, technical analysis does work.
I have been using the methods of technical analysis to trade for a long time now and I have been consistently making money for myself and have even taught others how to do it.
I really feel that the people that say technical analysis is dead or it just doesn’t work, haven’t just found out how to make it work for themselves yet.
I mean for me, fundamental analysis might not work, I don’t want to look at balance sheets, economic data, and other stuff to predict how the price will move.
There are big hedge funds and other institutions doing that and it works for them, but cool, it’s just not for me.
Still, will I ever say that fundamental analysis doesn’t work or it’s just a dead type of analysis or it’s nothing more than astrology for grown men or women? I would never say that.
I can give you hundreds of examples where technical analysis did work out and I can even give you examples where it didn’t, but in the end, it depends on whether you can learn the methods and use them to make money when the opportunity arises.
What do you think?
What view do you hold, do you believe in technical analysis, or do you think it’s a dead thing? Do let me know.
Don’t forget to share this blog post with others and let them also develop a perspective towards this.
You can always reach out to me with any questions or queries through the comments section below and I’ll get back to you as soon as possible.