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Monday, 5 August 2019

3 Technical Analysis Myths Traders Need to Know

Choosing the right analytical technique used during trading is certainly a challenge, especially for beginners. The emergence of a variety of analysis and its pluses and minuses, is an important consideration before "putting heart" on one analysis. In general, there are two types of analysis used in forex trading, namely technical analysis and fundamental analysis.

Speaking of technical analysis, the technicalists (the term for technical analysis users) usually choose this analysis because it is considered the easiest to find out the entry point, it is sufficiently used as a stock of trading, so it can show predictions of price movements with 100% accuracy. But did you know, if all the reasons were in fact only the myth of technical analysis? Facts in the field do not apply that way

Quoting from investopedia [dot] com, there are seven myths of technical analysis that develop among traders. Anything?



1. Only for Short-term Trading
Generally, traders choose technical analysis as a complement to short-term trading. They assume that technical analysis will be very appropriate to be used to find out the entry position, so it needs to be combined with short time frames such as Hourly or even 1M. It could also be said if this one analysis is suitable for use by Scalper and Day Traders. Is that right?

Apparently, technical analysis has been known for a long time. Even ancient technicalists used this analysis more for long-term trading and investing. For them, technical analysis can be useful to read the main trends, so that they are well aware of the condition of the price movement that is happening at that time. The use of long-term time frames such as Weekly and Monthly then made a choice, because their goal is for forex investment.

Based on the two comparisons above, it can be said that the myth of technical analysis only for short-term trading is not true. Conversely, technical analysis can be used in almost all time frames, from 1M, Daily, Weekly, to Monthly. The most important thing is to know the purpose of using technical analysis beforehand, whether for short-term trading or investment.



2. Can Only Be Used by Retail Traders
Another technical analysis myth that develops among traders is that this analysis can only be used by retail traders. Because of its simple and easy nature, retail traders assume that technical analysis is not possible to be used by other larger forex market players. In fact, forex hedge fund manager classmates also use this technical analysis.

Precisely because it is simple, direct and clear, technical analysis is very popular and is used by almost all layers of forex traders, ranging from retail traders, multinational companies, even though the top hedge fund managers. Technical analysis is relatively easier and faster to understand than fundamental analysis.



3. Has a Low Success Rate
This third myth has been opposed by almost all technical traders. Because the technical analysis is precisely what led them to trading success. Through this analysis, traders can predict price movements effectively compared to other types of analysis.

Do not believe? Call it Jack D. Schwager who was successful trading using technical analysis as well as the author of the book. In his book "Market Wizards: Interviews With Top Traders", Jack conducted interviews with several other successful technical traders, such as Ed Seykota, Bruce Kovner, and Michael Marcus.

Somehow, traders who think that technical analysis has a low success rate might think this analysis is lagging (slow) as in most indicators. In fact, there are technical indicators that are leading, such as Stochastic or Relative Strength Index (RSI) when used in divergence analysis. Both types of technical indicators will be very helpful for you during trading, because it serves to show the strength of the momentum of the ongoing trend. Also, from the existence of these two indicators, you can already identify the entry point of the Overbought and Oversold states.


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