Why Technical Analysis Isn't A Bulletproof Strategy for Trading

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Plenty of traders swear by their technical analysis strategy for trading opportunities, so much that many falls into the trap of thinking they can accurately predict the market. There's a lot to learn when it comes to employing successful technical analysis to your trades, but there are some common pitfalls you should avoid, too. 

Obvious Moves Aren't Opportunities 

When you first begin learning how to perform technical analysis on a chart, the basics seem so obvious. If there's a security that's trending downward you should buy the dip to ride the next trade wave, right? The problem with that thinking is that everyone is looking at the gap and probably hoping to employ the same strategy you are. That drives up the price, leaving little opportunity for profit after broker's fees are calculated. Don't let yourself fall into the trap of making obvious plays that trading beginners are likely to play. Know the securities you're planning to trade so you can understand the reason for the gap and whether you think it will be trending in the direction you're trading, either long or short. 

Don't Fall Victim To Overanalyzing 

Since obvious plays usually aren't money-making opportunities unless you get in quick, beginner traders can fall victim to over-analyzing their data to the point of paralysis. While technical analysis is a useful tool in helping you play the market, it should be used to help you make moves instead of agonizing over them. Technical analysis is but one tool in a robust toolbox that should be used when you're trading. Use it to help you develop a system you trust and stick to that system. Set a suitable stop-loss buffer to help prevent losing your whole investment and take gains when you reach the percentages you settled on in your system. 

Backtesting your strategy and running simulations will help you determine if it's one you should employ on the live market. Some brokers even have services that give you paper money accounts to test your trade theories using live market data. Use those tools to help develop a strategy and stop agonizing over the fine details. 

Technical Analysis Is By Definition A Biased Opinion 

When it comes to exploring opportunities to trade, you'll undoubtedly start looking at online trading communities to see what other traders have to say. There are no shortage of traders posting to Reddit and day trading forums about how they think a particular stock is the next big break out thing based on their analysis, which they'll happily share with you. There's nothing wrong with sharing this information with other traders, StockTwits is built around that concept. But traders often forget that technical analysis itself is a biased concept. It's not a proven money-making strategy because every analyst looks a data differently. You should always keep that in mind when you're looking at trading opportunities that are being presented online. 

Do your own technical analysis according to your trading strategies to see if the forecast coincides with securities trades you feel comfortable making. This way your trades will really pay off in the end.


I hope you enjoyed this article about why technical analysis isn't a bulletproof strategy for trading stocks and securities.

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