Why technical analysis is not reliable
Why technical analysis is not reliable
technical analysis is a useful tool for traders, but we have to consider it’s limitations. Technical analysis is basically based on assumption about the past market statistics and data, without putting into consideration other external factors . So traders should not 100 percent rely on technical analysis, they should use it together with other methods of analysis.
Some of its limitations includes
1.it is based on assumptions about past market trends, gotten from the past market price and volume data
2.it is a backward tool subject to interpretation from different traders.
3.Technical analysis will not provide the full details of the market, that is putting economic and global events into consideration,
so traders should put all these factors into consideration before making an investment decisions using technical analysis.
It’s why when you are trading, risk management is very important, no matter how sure one is about the trend of the market and no matter what Technical Analysis tells them. But there are some traders who urge that they never use risk management tools like stop loss. Perhaps they just use a small portion of their equity to trade, or they have probably never had their account get burned when there is a catastrophe in the market.