Benefits of Technical Analysis💥At this point, I would like to highlight the benefits of technical analysis, as many people perceive it solely as a means to play the stock market and generate substantial profits. However, the true benefits extend beyond that and include the following:
👉1. High Flexibility: Technical analysis can be applied to various financial markets, not just limited to stocks. It can be utilized in international money markets, interest rates, gold, Bitcoin, forex, cryptocurrencies, and more. In contrast, fundamental analysis may not easily translate across different markets. Additionally, technical analysis can be adjusted and tailored for use in different timeframes, whether short-term or long-term.
👉2. Time Efficiency: Technical analysis helps shorten the scope and duration of study. When time is limited or there are opportunity costs involved, technical analysis focuses on the net effect of the cause rather than delving into the root cause itself. This allows for quicker analysis and decision-making. Time never waits for anyone, and technical analysis acknowledges this reality.
👉3. Early Price Movements: Sometimes, price movements occur before fundamental analysts discover the underlying causes. Due to the global and interconnected nature of markets, there are numerous factors influencing price movements. While fundamental analysts may eventually identify the true causes, prices can be continuously affected by other factors. Traders who rely on money or stock trading cannot always wait for the real cause to be known as they may be at a disadvantage competing with other traders.
👉4. Time-saving Analysis: Technical analysis saves time by allowing analysis of a larger number of markets. Fundamental analysts may be limited to specializing in a particular business group due to time constraints and the abundance of data. In contrast, technical analysis enables us to examine price movements across various industries more efficiently and quickly. It provides a broader perspective and facilitates a better understanding of the overall picture.
👉5. Market Timing: Technical analysis helps determine the timing of market entry for stocks. It provides signals that aid in deciding when to enter and trade stocks or when it may be prudent to stay out of the market during a particular period.
💥In summary, technical analysis offers flexibility across markets, saves time, captures early price movements, analyzes a broader range of industries, and assists in market timing. It provides valuable insights for traders and investors to make informed decisions in their trading activities.
Some Disadvantages and Misconceptions about Technical Analysis👉1. While technical analysis can help limit the scope and shorten analysis time, relying solely on the final outcome of an event may render the analysis inadequate. It can leave one vulnerable to stock manipulation, which can be mitigated to some extent by setting predetermined stop levels. It is crucial to have the courage to cut losses swiftly when faced with unexpected price movements in the market. Failure to do so may lead to a more significant problem, as the number of losses needing to be cut increases.
👉2. Utilizing technical analysis without comprehending the underlying concepts can be perilous. For instance, using a trend-following system in a sideways market may result in frequent trades with minimal profits or barely covering the broker's commissions. Therefore, if one wishes to be a technical analyst, it is essential to grasp the concepts of the tools to be employed and integrate them with the direction of the market movement.
👉3. Some investors mistakenly believe that knowing technical methods allows them to buy at the lowest price and sell at the highest price. However, in reality, no tool or technique can consistently achieve this. Technical tools primarily indicate when to enter or exit the market, as well as when there is confirmation of a potential trend change. However, by the time a real trend change is confirmed, one may have already missed the lowest or highest point. Nonetheless, technical analysis can help reduce the risk associated with incorrect entry and exit points. It is important to note that technical analysis does not guarantee the attainment of maximum profits.
💥In addition, the signals of technical analysis do not always have to be correct. No tool is 100% foolproof. Users of technical tools must be disciplined and accept when analysis yields inaccurate results. It is important to prepare for such situations by setting stop losses, which means admitting that you were wrong at a certain point and deciding to sell (or buy back, depending on the case).