Technical Analysis - Does it work!?
When it comes to predicting future price in any market (e.g. Forex, Stock, Crypto), the two main approaches used are technical- and/or fundamental analysis.
In this article I like to share the experience I made with applying technical analysis in the Stock and Currency (Forex) market and how it worked for me so far.
I started with trading stocks around 15 years ago. At that time there was not a lot information available on the internet about technical analysis. My first book I read about TA (technical analysis) was the classic book from John Murphy - Technical Analysis of the Financial Markets which was a great starting point to understand Trends and Market phases.
After reading the book I though I am ready to become the next Warren Buffer (He is not using TA to my knowledge) and invested 5000 Euro in Daimler and Apple (AAPL was around 25 EUR back than I think!)
Well, you might think that this investment was a good choice and got me some nice profits. Unfortunately picking the right stocks is only half of what it takes to be successful. Even though I bought at a low, I made the mistake to not wait and hold but sold a few days later after the stocks went a few cents down.
So yes you are right, I had the golden tickets in my hands but managed to make a loss regardless.
TA is a great tool to determine highs and lows, based on past price movements and that in itself can give you an edge, however it doesn't help you if you don't have the mental and emotional strength to withstand corrections.
Another mistake I made which cost me a few thousand EUR's during the years are short term trading (below 1 hour chart) and too tight stop losses.
Nowadays you read in almost any trading forum to keep the stop tight and let the profit run. This might be true but didn't help me so far to make significant profits in the market. One quote that helped me transitioning from a losing trader to a currently breakeven trader is
It takes money to make money
The meaning is that you can't expect the market to give you X amount in profits but you just risk a few pips in return.
To summarise my experience with technical analysis and how I think one can be successful a s a technical trader
- TA is a great tool to determine market highs and lows
- TA is great to determine the Trend of the market
- TA can give you an idea where to enter and where to exit
- TA will not work on its own. You need the mental/emotional strength to withstand corrections
- TA is not an exact science, you need to give the market room (Stop loss)
A last comment from my side, in the first part of the article from #dantheman "Justification for 104 week power down" he shows a picture about the emotions of a trader in the various market phases. I read dozens of books about trading and trading psychology but that picture is so simple to understand and really confirms many of the experience I made in trading.
Thank you!
upvoted and followed . You may find some of my work interesting @me-tarzan
Upvoted and following and looking forward to reading more of your posts. Cheers. Stephen
Thank you, I will surely read through your posts
This is a great piece. Thanks for sharing. Technical Analysis works as long as you know what you are doing. It helps you to enter at the right time. Happy to upvote and pleased to share this on Twitter✔ for my followers to read. Cheers. Stephen
Following and looking forward to reading more of your posts. Cheers. Stephen
Thank you for your feedback and sharing.
I always thought of Technical analysis to be totally fluffy and every weather forecast is better. But after reading your post I start to change my view on it. Could you apply TA on the daily payouts of the steemit posts and predict the next day?
Yes, TA can be fluffy but if you take it as a tool that can help to "increase the odds" it can help for picking the right trades.
If technical analysis worked, studies would find those using it outperforming the market. In practice this isn't seen in research.
I can't say I am a successful trader but there is proof that TA seemed to work for people. One example out of the book "Market Wizzards" from Jack Schwagger is the interview with Marty Schwartz (Successful Fund manager )
“I always laugh at people who say, I’ve never met a rich technician. I love that! It is such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.”
That's an anecdote. There are also people who claim to be successful psychics, just none who can demonstrate it under repeatable laboratory conditions.