Does Technical Analysis Work?
“Remember, where there is a great risk, there is a great reward. If you hope to mitigate that risk, it is imperative that you approach technical analysis with patience and intent…”
By Block Society
Does Technical Analysis Work?
It is growing in the trading sector, on social media, and even in the classroom, but does technical analysis work? The short answer is yes. Much like math, the best way to explain why T.A. works is by reviewing the process. Before we jump into it, let’s determine what T.A. is and precisely what it does. By definition, technical analysis is the forecast of future changes in price based on a host of analytical data that is collected from previous dates within a specific market. In other words, it is the sweet science of price action.
When it comes to application, technical analysis is often heavily favored by investors and used as a tool to anticipate future price in hopes of increasing profit. With that said, while technical analysis and the art behind it can guide you to a successful investment, the results, even in winning trades, are always subjective. Another critical factor to determine is, who should be using technical analysis when making investment decisions? According to common myth, the answer is day traders. In reality, the answer is everyone. Getting a closer look at the market that you are putting your hard earned money into is never a bad thing, even if you do not use the practice to execute a trade. Beyond that, the habits that you develop along the way have proven to be beneficial to a traders progression.
Remember, where there is a great risk, there is a great reward. If you hope to mitigate that risk, it is imperative that you approach technical analysis with patience and intent.
With a basic definition of technical analysis under our belt, we can now look to understand its practical application by reviewing a few tips on how to get started.
“When it comes to application, technical analysis is often heavily favored by investors and used as a tool to anticipate future price in hopes of increasing profit.“
The Essentials of Technical Analysis: How To Get Started
While this may seem self- explanatory, too many investors try implementing technical analysis without the proper research. There is little to no way to stress this enough, trying to trade after merely understanding the basics of technical analysis is a sure fire way to lose money. We highly recommend utilizing the resources around you to surround yourself with the correct information. Articles, videos, lessons, and even conversations with more experienced traders are all effective ways to learn. No matter what the means of research is, it is one of your best technical analysis tools.
#2) Warm yourself up:
Familiarize yourself with the stock market. As someone new looking into technical analysis, you must be able to navigate through the market that you are analyzing. From the outside, the stock market may seem intimidating, but its movement is often used as a key metric when investing.
#3) Ask an expert.
Asking an expert for help will drastically increase your success rate with technical analysis. We say this with such a definitive tone due to one factor that is rarely covered in technical analysis text, but always obsessed over in conversation; emotion. Trading experts or those with experience will always do their best to encourage traders to depart from emotional decisions when trading. We would highly recommend asking for advice on this from someone more knowledgeable, successful, and respectable. Doing so can save a lot more than your trading account!
#4) Apply the tools:
Indicators, signals, and alerts, oh my! At this point, you can start looking to pair your newly acquired knowledge with a set of tools that will aid you in your journey. We recommend starting with basic indicators such as trend lines, moving averages, or the relative strength index (RSI).
There is no better way to learn than to teach. When you as an investor have collected enough knowledge and expertise in technical analysis, it is time to spread the wealth. Learning about technical analysis is a lifelong task, as the stock market is never stagnant. As an investor, you want to be knowledgeable of just about everything this is going on in the market. Teaching someone else the fundamentals of technical analysis not only allows you to master them yourself, but it also opens you to new learning opportunities.
So, Does Technical Analysis Work?
The answer is yes. Plain and simple, yes, technical analysis works. Remember, the success of technical analysis depends on the level of expertise of whoever is doing the analyzing. The more you study, practice, and trade, the better your chances of profiting.