Why technical analysis cannot predict the future, let’s see
in today’s post.
Technical analysis is a basic and fundamental of trading. But
you can not rely wholly on technical, lot of new traders, trade on candlesticks,
patters & support and resistance. Nothing wrong into it. But the key point differentiates
from unsuccessful to successful traders, is that successful traders cannot predict
market on the basis of technical analysis. This subject is debatable, but keep
in mind that when you try to focus on predicting market on the basis of
technical analysis, you are on verge of failure. Don’t predict just trade the
market as it is.
I should start by saying that my viewpoint on predicting
future prices differs from that of the standard school of thought. I believe
that markets cannot be predicted with any degree of consistency.
During my investment career, I reviewed dozens of technical
analysis reports, and to say that technical analysis isn't particularly good at
predicting future prices is an understatement. Regardless of the strategy, just
as many chart pattern forecasts were incorrect as correct. The sooner you
accept that truth, the sooner you will begin to profit from it.
My approach to technical trading is primarily mechanical and
trend-following in nature. This means that I have no idea what the markets will
do next; I merely follow precise rules that tell me to purchase if they are
rising and sell if they are falling. Technical analysis, in my opinion, should
only be used to provide yourself with solid buy and sell criteria that can be
used to test a method and eliminate the uncertainty and doubt that will occur
each time you are about to enter or exit a position.
The technological tools you employ are unimportant as long
as they provide you with specified guidelines that only allow you to buy assets
that are rising in value and sell assets that are falling in value.
The important idea should be reiterated: technical analysis
is not predictive. It is only a reflection of previous prices.
But don't be discouraged: the fact that so many other people
believe technical analysis is predictive works in our benefit.
Consider a couple of the most commonly used technical
terminology in trading: the concept of a 'overbought' or 'oversold' market.
It's everywhere, including Twitter feeds, Telegram messages, and YouTube
videos.
A technical indicator, such as the Relative Strength Index
(RSI), will be over a specific level, usually 70, and all those who believe
that technical indicators are predictive will anticipate a market reversal. When
The RSI is over 70; this market has gone too far up, Its just the number. Traders
understand The market has become overbought; expect a correction. Etc.
Such analysis implies prediction into the future, but no one
can predict whether a market is too high or too low. The market is trading
where it wants to trade.
For the better part of a century, successful traders have
shared the following insight with anybody willing to listen: 'Don't engage in
fighting with the market!'
Technical analysis is just a tool, to use, but don’t wholly
focus on the same. Be flexible, trade levels, than patterns and candlesticks.
Hope you understand my point, don’t predict, just trade.
Happy Investing & Trading
The ValuePlusOptions Team
0 Comments