Disadvantages of technical analysis

Недостатки технического анализа

Tell me, what method of trading you choose for trading? Follow the trading signals or trading with expert advisors? Prefer scalping strategy or fundamental analysis? By the way, about the faults of fundamental analysis it is written a lot, but the oil market is now reacting on it. And if you read the analysis, the experts are  talking about the fundamental reasons for the growth or decline of quotations. However, we are talking about day quotes, whereas technical analysis can give information on long-term strategies. Or instant, that is scalping.

Someone thinks that the disadvantages of technical analysis are too large (more about this in our section “Interviews with traders”), someone on the contrary only works on it. It is everyone’s business. Still I will focus on some negative aspects of technical indicators.

Disadvantages of technical analysis

1  Interference

I would call this information noise. Technical analysis is very subjective. Quick changes in schedules may have an adverse impact on the trading results. What may seem on the chart to signal to enter the market, in fact will be only a noise, that can be tracked only on large frames. It is possible to increase the accuracy of the signals by the number of indicators used, however, it is not a panacea, because it reduces the number of entry signals into the market.

2.   Controversial conclusions

How many people, so many opinions. Someone sees the cup half empty, some half full, although the level’s one and the same! Technical indicators may show the signals. Different traders may interprete exactly the opposite. Interestingly, both traders will find legitimate confirmation of his conclusions, and even quite logical. Maybe that’s why the analysts at the investment banks come true only in 60% of cases?

3.   The time lag

Unfortunately, Forex trading requires fast reaction. In addition to the fact that the signals can be delayed, the trader may also be late in decision. By the way, regarding the lag the Dow theory is often criticized.

4.   Exceptions

Disadvantages of technical analysis are also evident in the fact that the figures and postulates do not work 100%. Yeah, maybe you saw the build of the figure, but the external factors will work , such as the volume of trades that negate a successful market entry or exit.

To sum up. Theory often diverges from practice. Each tool has its own characteristics, and it works not in every situation. Only experience, only testing instruments on a demo account will allow you to choose the optimal strategy. And, of course, be prepared for possible financial losses!

About the author


five × 4 =