Friday, September 08, 2006

Flaws in Technical Analysis

There is a popular way of looking at Technical Analysis. “What is your success percentage?” is asked. This is a very wrong way to look at analysis. The reason is that a profit may be $ 10 at one time but a loss maybe $ 100 at another. There is no comparison. You will be surprised to know that many successful traders get only around forty percent calls correct but they ride them to maximum profits. The wrong approach has earned the science and art of technical analysis being labelled as suspect. Do it is the individuals using it who make the tool good or bad.

While the science of Technical Analysis is criticized by some as having many defects, it is the user who has to be aware that it is just a tool to enhance your chances. Many new traders come to the market believing they have made the next big discovery of a money minting machine.
Only Technical analysis combined with prudent risk management, money management and trade optimization can help you make profits. Technical Analysis tools are just a beginning to becoming a professional analyst. There are higher challenges most of which involve an individual’s psychological make-up.
Remember that Technical Analysis is almost always the best tool if your time horizon is short, but only if used correctly.

It is very common to see retail traders flocking to a new analyst with a new technique. Remember, your growth as a good trader will accelerate only once you give up the search for the next magic formula. You grow to be a professional trader once you stop looking for the next amazing trading indicator or the next amazing Technical Analyst giving great technical calls. You must start concentrating on trade Optimization instead.

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