If you've heard of technical analysis, or TA, before, it's easy to believe that it isn't relevant to you. There are so many myths floating around, saying it doesn't work for most stock trading, and that it isn't accurate. There are people out there who say that in fact, TA is the best thing for understanding the market. What is the truth? Let's uncover it by debunking the most popular TA myths.
- TA Is Only For Short Term Or Day Trading
This is the myth you've probably heard most often. Detractors or TA say that it's really only appropriate for computer-driven trading, such as short term trading and day trading. Otherwise, it doesn't hold much value.
'You'll be surprised to know that TA was in use long before computers were invented' says finance writer Kathleen Horner, from 1 Day 2 Write and Write My X. 'Also, some of the first people using TA were long-term investors and traders.' Because of this, TA can be used on a long-term scale, not just for days and weeks.
- TA Doesn't Have A Great Success Rate
Many traders are put off the idea of using TA because they believe that it has a low success rate. However, this is something that just isn't true.
When you do research into the most successful market traders out there, you'll see that they often use TA to track the markets and decide how they can profit from them. It's one of many tools that can be used to be successful for yourself.
- TA Is Only For Individual Traders
Another common myth is that TA is just for individual traders. It is true that a lot of individual traders are successful using TA, it's not just for them.
You'll see that a lot of hedge funds and investment banks are using TA quite often as well. Investment banks, in particular, now employ whole teams, who are dedicated to using TA in their work. High-frequency trading is also highly dependent on TA too, especially when dealing with high volumes of stock.
- TA Is Easy And Quick To Do
Take a look online and you'll see people offering courses on how to use TA. They promise that it will be quick and easy, and you'll get instant success.
Like most things in life, it's not as easy as that. You can certainly enter the world of trading using simple TA techniques, but you won't progress further until you do more research. 'There's more to TA than you'd think' says James Bale, a business writer at Brit Student and Next Coursework. 'If you want to take it further, you'll need to do more research and learning, and that takes time'.
- TA Can Provide Precise Price Predictions
One of the advantages of TA is that you can use it to predict prices, so you can get an idea of how much a certain stock may be. When you first start looking into it, it's easy to expect that these price predictions will be spot on. For example, you may expect a certain stock to reach $60 in two months time.
It's important to know that TA will give you a predictive range, rather than a precise number. It can't offer a guarantee, as you don't know what's going to happen in the future. Instead, it will offer you the ability to study the probability of a certain price being reached. It doesn't work all the time, but it's still a good tool for increasing profits.
- Ready-Made TA Software Can Help You Make Money
This is a myth that sounds good, as who doesn't want to make money easily? There are plenty of sites online offering ready-made TA software, promising to take the hard work out of it for you.
While that looks good, it's not going to give you the results that you want. They can't do all the analysis for you, and they can't guarantee profits.
There are so many myths around technical analysis floating around, and you need to be sure that you have the facts. With this, you can be sure that you know what TA can and can't do for you. In many cases, it's a powerful tool when used correctly.
Michael Dehoyos, writer and editor at Academic Brits.
