Criticism of Technical Analysis – How Other Traders View Technical Analysis

Criticism of Technical Analysis – How Other Traders View Technical Analysis

Technical Analysis is something that’s widely used in the Forex market particularly when using the trading platform MetaTrader. Traders rely on when to enter or exit the market from the results of their technical analysis. However, there are investors who are following a more traditional outlook and tend to doubt the ideas from price chart positioning. Here are some of the most common criticisms thrown at technical analysis.

Fundamental Gaps

Most of the time, traditional investors put their focus on the fundamental factors of trading. The results you get in fundamental trading mostly contradicts the one you get from technical analysis. They have countering results which add to the confusion of traders as to when to exactly buy or sell an asset in the market.

Unforeseen Volatility

Aside from the fundamental gaps, another criticism encountered by technical analysis is the unforeseen volatility. According to traditional investors, technical analysis misses to alert them during times of extreme volatility. Therefore, traders will have to turn to financial news developments so they can understand the cause of this extreme volatility.

If traders fail to predict the cause of volatility, then traders will find it tough to identify how much time it will take for the extreme market movement to last. Is the extreme volatility short-term only? Or is it something that would change the market for a longer period of time? These questions are mostly not answered by technical analysis traders.

Combining Techniques

Citing the criticism encountered by technical analysis doesn’t go to show that it is not advisable to be used in predicting the market movement. There are now a lot of traders who utilize both technical analysis and fundamental analysis to predict more accurately the movements of the market. Although there is criticism on the use of technical analysis, you cannot hide the fact that it is widely used and mostly accepted in the Forex market especially when using trading platforms like MetaTrader.

Advantages of Technical Analysis

One of the advantages of technical analysis is the fact that it can be applied in almost any trading timeframe and instrument. It is very useful in analyzing stocks, interest rates, commodities, and Forex. If you are going for a short-term trading position, you can apply technical analysis, same goes if you are trading in a longer time frame. As a matter of fact, technical trading can be applied for intra-day time frames, minutes, weekly, and monthly time frames.

Technical analysis can be used as a standalone method of predicting the movement of the market, or it can be combined with other methods such as market timing and fundamental analysis.

For professional traders, they tend to utilize technical analysis when creating sets of rules and guidelines in assisting the market process – when to trade, where to trade, how to trade, and when to enter or exit a trade. With the use of a technical indicator as well as chart patterns, you are able to easily apply available techniques and tools in finding potential trading opportunities for a more profitable trade.