The greatest and most critical risk of technical analysis is that, before long, it starts to demonstrate exactly what YOU DESIRE to see!
In quantitative studies, there's Data Mining a phenomenon where your research starts showing you what you wish to see in place of what's actually happening and that is known. Information Mining occurs most regularly when there's a massive advantage for your requirements if the outcome are showing a proven way instead of another. This really is t..
Lets reduce to the chase
The most critical and biggest risk of technical analysis is that, after a while, it begins to demonstrate just what YOU WISH to see!
In quantitative studies, there is Data Mining a trend where your study starts showing you what you wish to see in the place of what's actually happening and that is known. Information Mining does occur most often when there is an enormous benefit for you if the outcome are showing a proven way in place of another. This is actually the very same phenomenon in technical analysis.
In technical analysis, maps begin showing you what you want to see especially when you have made a blunder and wants the investment to go one way as opposed to another! Suddenly, the deeper you dig in to the variety of technical indicators, the more research you seem to find supporting your mistake, giving you the eerie confidence that the mistake will probably come out just fine.
We all remember how that ended up, dont we?
Technical analysis is essentially research of the many approaches to interpret old cost and volume action so that you can form an opinion of future direction. Because technical research practices have become therefore complicated over time with virtually 1000S of technical indicators that have been produced, the average amateur buyer can always find ways to make a chart look how they want to buy to and point towards a non-existent future direction!
I'm not, before everyone here thinks that I'm against technological analysis. Actually, my principal trading system, the Star Trading System is just a complex analysis based alternative trading system that has made me cash over and over again, every year. Advertiser contains more about when to acknowledge it. Therefore, what really is the situation? The problem is the misuse of technical analysis and the misuse of incompatible technical signs! You will never have the ability to use technical analysis to create an educated opinion, until you really comprehend the system and logic behind every technical indicator, the purpose for which each indicator has been created for and what other confirming signals works together each other! You will continue to see only whatever you wish to see. Some call it Analysis Paralysis, I call it pure ignorance.
However, it takes years of study and loads of lost money to obtain technical research right and it will only become harder and harder to have right with ever new indicators and more complicated being developed everyday. A lack of knowledge and lack of time for you to attain that knowledge has always been the bane of amateur professionals. That is why following a proven and developed trading program with a proven, private mix of signals is the best thing an amateur dealer may do.
Therefore, next time you look at a technical analysis data, remember, are you only trying to prove what you already have in mind? Because if you're, then you are more than likely to get most of the facts you need to help your own personal views.
Copyright © by the contributing authors, 2007-2024.