Some important points about technical analysis
Technical Analysis should only be used as a tool for trading decisions and not for investment strategies. Technical analysts use various indicators such as moving averages, volume, advance/decline lines, support/resistance levels to determine the future movement of prices. Technical analysis can be used by investors to identify patterns in the market and make predictions about future price movements. This is achieved through charting, which is the process of plotting lines on a graph that show the historical price movement of a security. Technical analysts don’t pay head to the PE ratio, debt on the company, if the price is high or low etc. Technical analysis can’t also be used for the long term, to get returns in the long term we use Fundamental analysis. The time frame for technical analysis can be from a few minutes to a couple of weeks. Technical analysis can also be applied to any asset if we have the required data such as previous prices, volumes etc. There are also some risks involved in technical analysis, suppose a pattern is being formed indicating the stock prices to move up but suddenly a really big financial scandal happens and people start panic selling their shares leading to a flood of supply in the market and the prices falling drastically. Technical Analysis is proved to be wrong in such cases.