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Is technical analysis overrated?
In 2024, Team India will win 9 out of 10 matches at Wankhede Stadium. That means the winning ratio is higher. So now based on the previous data, for the next game, you can easily guess the maximum probability that India can win the game.
But, if I say that some players are suddenly replaced for some reason and some new players are introduced for the next game. So what will be your prediction now? Despite the higher win ratio at Wankhede Stadium, your prediction rates may drop to 50:50.
Understanding the Technical Analysis (TA)
The same happens with analysis.
Technical analysis is just a tool for predicting the market. It does not guarantee you profits. Same as we discussed The ground is also a tool, which does not guarantee victory, as it depends on many other factors, like the weather, the players, their performance, etc.
To some extent, it can be said that it has been overrated. But this is done by people who do not know or understand how to use it.
With the help of TA, you can find support and resistance points i.e. demand and supply areas. You can see the trend. But one bad news can change everything in the market.
Suppose, Rohit Sharma started hitting from the very beginning, he hits fours and sixes all over the field, then what do we think at that time, will India be able to break the record today? Will you be able to set a new high score?
But suddenly a new bowler comes to bowl and Rohit Sharma is out on the very first ball. So now you will start thinking that Virat Kohli will have to play the game. It means that one support is broken and you start thinking about the next support.
This does not mean that if Rohit Sharma is playing well in the beginning, he will never get out. Anything can happen at any time. That’s how the market works.
You draw support and resistance or a trendline on a chart and start predicting things in your mind. So here you need to know that technical analysis does not work every time, for this, it is necessary to fulfil certain conditions. You should know market news, stock updates and specific stock trends. But one thing is sure analysing stock technically provides you with data to predict the next possible move.
So I strongly believe that technical analysis is not overrated, the problem is not in TA. The main problem lies behind the mind that uses it and applies it everywhere and in every market situation. I have seen many times that some people try to apply technical analysis on options charts. How can you apply technical analysis to an options chart, where the price of an option depends on many other factors? (Delta, Gamma, Theta, Vega)
Technical Analysis of Tata Power
This chart is of Tata Power you can match the trendline on your chart.
Just a few days ago in this chat on my family group (I am writing this post on 06 April 2024), I mentioned tracking stock movements for learning on my relative’s WhatsApp group. I told them that the stock price may fall to 385 – 375, and after taking reversal can go up to 412-413. The next day it fell to 365 i.e. below the support trendline and my prediction.
So here you can see that my prediction was a bit wrong but not the analysis. Maybe I have drawn the line wrong. But the line drawn by technical analysis had worked well. As you can see on the chart, and probably after the next 15 days this stock also achieved the target.
So I just want to tell you that there are two types of people in the market who do trading. One is based on practicing fundamentals and the other is based on technical. Both have their own rules, and both are also important for running the market. If you understand where it is said and how to use it, then technical analysis works well even today.
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FAQs
What is technical analysis (TA) in the stock market?
Technical analysis is a method of studying charts and historical data to predict future stock price movements. It uses indicators like past prices, trading volume, and other technical factors.
What are some limitations of technical analysis?
it doesn’t account for unexpected events like company news or global issues that can cause stock prices to jump or fall. The market is influenced by many unpredictable factors.
Can Technical Analysis help us to identify trends?
Potentially. TA can show trends and potential entry and exit points for buying and selling stocks. However, it shouldn’t be the only factor you consider.
