Investing in Cannabis For Dummies by Steven R. Gormley

Author:Steven R. Gormley [Gormley, Steven R.]
Language: eng
Format: epub
ISBN: 9781119674740
Publisher: Wiley
Published: 2021-01-11T00:00:00+00:00

The cons of technical analysis

Technical analysis has some drawbacks. If it didn’t, every investor in the world would use technical analysis to inform their buy and sell decisions. The fact that many do not is testament to some of its shortcomings, which include the following.

Delivers mixed signals: One technical indicator may send a buy signal, while another sends a sell signal, which can leave you clueless as to what to do. To overcome this limitation, many technical analysts look at a combination of technical indicators, patterns, trading volume, and moving averages.

Lacks precision: Trends may indicate a probable reversal in the near future, but that’s only a probability, and you can never tell exactly when that trend reversal will occur. In the meantime, you could be losing money as you wait for the right point to buy or sell or after you actually buy or sell the security.

Isn’t exactly technical: Technical analysis is a human approach that tracks human behavior in a particular market. In other words, just because it’s called technical analysis doesn’t mean that it’s technical like the laws of physics. It’s called technical analysis because the data you look at is technical. But the movement of the price of the underlying stock or investment is due to the cumulative decisions of many buyers and sellers who are human — and therefore, fallible.

Requires interpretation: Two analysts can look at the same charts and indicators and come up with conflicting opinions about buying, selling, or holding. The charts and indicators don’t give you the answers; they only provide information and insight to inform your opinion. Getting good at interpreting the data requires practice.

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