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
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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