LIMITATIONS OF TECHNICAL ANALYSIS:
Often, traders use it to make decisions about buying and selling securities. However, there are several limitations to the use of technical analysis that investors should keep in mind.
Technical analysis is based on the assumption that market trends, derived from past price and volume data, will continue in the future. This is not always true, as market conditions can change rapidly and unexpectedly, leading to sharp changes in trends. Therefore, one should not rely solely on technical analysis for investment decisions.
It is a retrospective tool, meaning that it only considers past market data. This implies that it does not take into account external factors, such as economic news or global events, that can affect the market in the future. As a result, technical analysis may not provide a complete picture of the market, and investors should consider other factors before making investment decisions.
Technical analysis is subject to interpretation, and different traders may use different methods and techniques to analyze the data. This can lead to differing conclusions from the same data, which can be confusing and misleading for investors. Therefore, it is important to understand the assumptions and methods used in technical analysis and consider multiple sources of information before making investment decisions.
In summary, technical analysis is a useful tool for traders, but it has several limitations. It is based on the assumption that past market trends will continue, does not take into account external factors, and is subject to interpretation. Therefore, investors should use technical analysis as one of several tools in their decision-making process and not rely on it alone.
