Jump to content
  • 0

What are the limitations of technical analysis?


Sarah Parker
 Share

Question

1 answer to this question

Recommended Posts

  • 0

Hello, thank you for asking! 

Despite being the most popular mean of analysis used in trading society, technical analysis suffers from certain drawbacks and other deficiencies. The first and most common criticism of technical analysis is the broad input of data, without thorough data research and relying only on two aspects to provide correct input which will be used for prediction of price and volume of a certain stock.

The second criticism of technical analysis is a heavy reliance on historical patterns, and expectation that these patterns will repeat every time, in case of non-repetition, predictions fail and may incur heavy losses upon investors.

The third criticism is derived from the second one, where many traders will place stop-loss orders according to these historical patterns, and when the stock reaches limits that trigger it, there will be a high selling pressure which will further push the stock down and lower its value.

So, these orders and traders’ movements may bear a negative effect on stock value in the short and long term. If the trend is downwards facing, it will further devalue the stock and cause huge losses.
 

Link to comment
Share on other sites

Join the conversation

You can post now and register later. To reply to this question, sign in or create a new account.

Guest
Reply to this question

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

×
×
  • Create New...