If you’ve been investing in the foreign exchange market, you are probably conducting some technical analysis at the moment. Technical analysis really helps a lot when it comes to “reading” the market.
In technical analysis, you read the Finance Brokerage Education market by looking at charts, indicators and different tools that show you how the prices, the market, and the assets move currently. These help you see the bigger picture while you’re trying to predict what’s next, hopefully finding the perfect way to have some gains.
However, technical analysis isn’t perfect, as is the case with other types of market approaches and analysis. There will always be risks and shortcomings.
Here are some of the biggest risks and disadvantage of using technical analysis for your trades.
Technical analysis is subjective
According to the critics of technical analysis, this type of analysis is very subjective. And that is quite right. Technical analysis takes skill and expertise, but it’s also more of an art rather than a strict science, in its own way.
This is why you see even those old-timers who have used technical analysis for many long years having some disagreements with each other. These people read the charts and come up with different, and sometimes contradicting, conclusions about what the chart says.
In addition to that, whenever a trader attempts to read a Forex Trading Strategies chart, their biases and expectations always come into play. Such things affect their judgment of what the technical charts tell them.
If you are not good enough at reading technical charts, there’s a huge chance of you losing some of your money on a trade.
There’s a lot of information noise
Since technical analysis is subjective, it’s really very easy to lose confidence on your judgment, therefore your strategy. There’s also really no way of checking if your assumptions are right except to wait for the market’s next move.
Sometimes, it seems to you that it’s a good time to enter the market, but then you’ll find out, after you have entered, that the signal you thought you saw was really nothing of importance.
This will push traders to share their assumptions and conclusions. And since the information flow is really fast nowadays, it can easily get noisy in the market, with hundreds of technical analyst trying to share their different interpretation of the same chart everyone’s looking at.
Luckily, you can fix this problem by just using more than one technical tools. Use more than one indicator or chart. The more you use these things in conjunction with each other, the more you can make your guess accurate.
Time Lag
You have to react quickly to any new price movement or news when you are conducting technical analysis. Fast reaction time is key. Missing an important movement or announcement can make or break your forex trading career.
Time lag can be very stressful for traders. It can even affect a trader’s psychology since it makes him or her much too careful of his or her every trade decisions.
In addition, this wouldn’t sound really nice for those who are easily rattled or distracted by sudden market noise.
