If everyone is using technical analysis, wouldn't that render it useless?

Question

I want your honest opinions, i'm open to both negative and positive cuz i'm thinking of studying this investing strategy..

Answer 1

It is not useless-it is but a tool in the wide world of economic indicators. Just as you couldn't build an entire house with a single hammer, you probably would not just use one indicator in your decision to buy or sell.

The most important thing to know in a market is whether a security is "trending"(aka, moving in one direction), or "trading"(aka consolidation).

In a trending market, long-term participants are in charge. In other words, investors are taking positions that they do not plan to cover at the moment. Therefore, most everyone is doing one thing, we will use buying as an example. Trading is imbalanced-biased upwards in this example. Order flow is one-sided. In a trending environment, technical indicators that spot trends are valuable.

In a trading market, short-term participants are in charge. This is also known as balanced trading, a flat trend channel, or consolidation. Order flow is balanced because different traders have different feelings about what might happen next. Traders at this time will tend to "fade" the market, or buy when someone else sells-sell when others buy. Technicals that spot trending markets are useless in this environment, but other indicators that spot overextension, etc. are of more value.

Knowing whether a market is trading or trending is the key to successful trading. If any one person could do it accurately for but a week he or she would be a multimillionaire! Naturally, markets move in and are affected by many different time frames at one time-short-term, medium-term, long-term, etc. and they might be trending short term while trading balanced in another. That is why is absolutely important to know and respect the time frame that you choose. Remember, every security is different, but markets tend to "trade" most of the time-partly due to the dealer system where a market maker stands ready to buy or sell when you do the opposite. Since many indicators are set to spot trends, they will often be wrong. Of course, when breakouts occur, meaning when the security breaks out of balanced trading and on to a new value area-usually due to a news event or some other catalyst, the security moves far and fast, and usually the longer it has been balanced, the faster it will break. It is at this time that those who just fade the market lose big or get stopped out.

Good luck.

Answer 2

First of all, technical analysis doesn't work - some market people use it, but not the really smart ones (like the people who want to sell you real estate investment strategies - think about it, if it really absolutely worked, would they be doing it, or trying to sell it to suckers?).
But assuming that all people HAD to use it, it wouldn't render it useless as it is interpretive in its analysis, and application, hence the results will vary by person.

Answer 3

Your question explains why technical analysis can't work.

If it did work, then indeed, "everyone" would be using it, and any information you could glean from technical analysis would be already incorporated into market prices, thus rendering your information useless.

Answer 4

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Answer 5

lol, think about it, do you honestly think that "everyone" is using tecnical analysis, alot of people don't use it, just look at Warren Buffet's views on technical analysis, he's strictly fundmental, and im pretty sure alot of people just buy stocks because it's receiving alot off good press and stuff, that doesn't mean that they bought it because they analyzed a chart, to learn techincal analysis, you actually have to study it, and take the time out to learn it, many people just aren't willing to do that

Answer 6

It would if there were one thing called "technical analysis", but there isn't.

Some look at minute-by-minute statistics; others use weekly, as well as every other time frame imaginable. Some people use simple moving averages, or exponential moving averages or RSI or stochastics or.... You get the idea,

Answer 7

No, it won't. It is possible that one chart could mean different things to different people. One person could be trading based on moving averages whereas the another would be relying on support/resistance. Also people trade in different time frames, what could be a great buying opportunity in a hourly chart, could be a strong sell signal in a daily chart!