On technical indicators, hundreds of strategies and trading advisors are built, ignoring graphical and fundamental analyzes. Professional coaches recommend moving, Bollinger bands, oscillators, forgetting that only a combination of all methods of analysis can bring a positive result. Disadvantages of technical analysis should be leveled, but to eliminate them, you need to understand its weaknesses.
Technical Analysis Weaknesses
Technical indicators are only mathematical formulas that are based on historical patterns. Despite the cyclical nature of the economy, even in the long run they may fail. Shortcomings of technical analysis:
- price noise (small fluctuations due to various local factors – transactions, disruptions in the supply of quotations, etc.);
- redrawing of indicators (arising from problems on the broker’s side, Internet service provider or platform failures);
- problem with market makers. They see a glass of prices and do everything to ensure that traders’ safety orders are hooked, and the take profit does not reach the price. Their volumes of liquidity do not leave chances for small traders.
2. Different interpretations of indicators
The same indicator signal can have a different interpretation. In practice, accurate signals are rare, and therefore are perceived ambiguously. Anything can play a role: different angles of intersection of lines of indicators, controversial confirmation of signals, different signals of the same indicators on different platforms. The same graphic situation can lead to both profit and loss.
3. Lateness and influence of minor factors
The lack of technical analysis is that it is influenced by fundamental factors and investors’ expectations. The indicator signal is less strong than the fundamental news. Therefore, trading only by technical signal is obviously unprofitable. Under the hand of the investor should always be a news feed and economic calendar. And also readiness for force majeure.
Theory is often different from practice. Each tool has its own characteristics and does not work in every situation. Mortgage risks and gain experience using tools on a demo account.