I am new to investing, and was just wondering how important is it for investors to learn technical analysis when evaluating stocks, and what specific benefits does understanding technical analysis offer in making informed investment decisions?
If everyone could learn how stock pattern works, wouldn’t everyone just be rich, obviously no one can predict everything, but if learning the chart pattern is useful why wouldn’t everyone do it to buy/sell?
In: Economics
Stock analysts, overall, do about as well as someone picking at random.
As you said: if it was predictable, everyone would be rich. Too bad it isn’t.
Most people in investing would tell you, a private regualr guy that you don’t need to know anything about investing. You should put your money in an S&P 500 fund or similar stock or mutual fund that tracks the overall market, and thats it, thats all you need to know or do.
So if you’re asking how important it is, the answer is, its almost certainly not important. It is important for people who trade stocks for a living, who are doing more complex trading strategies, generally with other people’s money, not their own. Or maybe its not. It depends. There are many people who think that these guys trading all day are not particularly better than just investing in the market like above.
Note: you asked a question that has a lot of emotional energy from all sides.
If you are going to study an actual *stock investor*, as opposed to a slot machine player (AKA technical trader), read up on [Warren Buffet](https://en.wikipedia.org/wiki/Warren_Buffett) and his investing philosophy. The man is a legend in the buy-and-hold-forever investing community. He doesn’t just buy anything, only to dump it by the end of the day/week/month/year, he buys stocks of companies *that make sense*.
He has said more than once that his trust is set up to put his wife’s money (assuming she survives him) in an S&P 500 index fund (e.g. [Fidelity 500 Index Fund](https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/315911750)) and leave it there. Short-term you might be able to do better, long-term probably not.
Technical analysis is useful, but up to a point. It’s useful to learn the core principles, but there is no real benefit to diving deep into every detail because it doesn’t produce significant results. Technical analysis is not proven to work, and if it did it would be proven because trust me when I say that people are studying the markets constantly. If it did work then it would be a simple matter of learning everything about it and then becoming a money printing machine.
Candlestick patterns, graph patterns, various lines drawn on charts, none of these can actually predict anything. But ultimately technical analysis is something that nearly every trader uses to some extent and that’s where its utility comes from. The markets are moved by the collective sentiment and decisions of its participants. Overanalyzing a graph provides no significant advantage because while a lot of people overanalyze charts, each of them do it a little differently. But a lot of people follow the basic principles, like support and resistance levels. If you’re seeing them they’re seeing them too and will probably act on them. That’s something you can somewhat rely on as it’s pretty much guaranteed to produce a specific movement, sort of like a self fulfilling prophecy. If a lot of people assume a stock will move in that direction when they see that pattern and act based on this assumption, the stock will indeed move in that direction. That’s about as useful as technical analysis gets.
If you see anyone claiming they’ve figured out the patterns and can tell the future they’re lying and probably trying to scam you.
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