Tuesday, 11 April 2017
5 myths about technical trading
Trading is a difficult thing. Yeap, no shortcuts to a successful career. It’s all about hard work and a lot of practice. Still there? But in case you are willing to go down this exciting path, the result can be extremely rewarding, meaning you can make huge money.
When talking about trading analysis, there are two big groups to keep in mind. Those who analyse assets from an entirely technical standpoint, and those who think of market moves as a reaction to economic decisions or political events.
In this article we will focus on the first approach, which is very popular among new traders. However, its popularity has nothing to do with its actual effectiveness. Let’s see what are the most common myths about technical trading:
Technical indicators are easy to implement:
Sorry to disappoint you once again in your search for easy money. Nope, nothing alike. But hey, I didn’t say it’s rocket science either. Just be ready to work out your brain a bit and everything will be possible. Don’t be fouled by untrusted brokers promoting quick returns by applying some magic formulas of technical indicators, it doesn’t work that way. Technical indicators are just a small part of a successful trading strategy, which by the way should be balanced with fundamental analysis and lots of psychological work underneath.
Technical indicators work with all kinds of assets:
Do you wash your all clothes with the same detergent? I don’t think so. The same rule applies here. Each asset requires a tailor-made set of technical indicators, meaning that you should program them accordingly in order to get accurate results. Stocks, indexes, CFDs, ETFs, commodities, options… the list goes on and on.
Technical indicators are only used by retail investors:
Another lie. Large financial institutions, including investment banks or hedge funds have trading teams working exclusively on technical analysis. So… don’t feel alone on your struggle. While big players might be a bit more sophisticated than you, if you got the basics right, no worries.
Technical indicators are only suitable for short-term investments:
While technical indicators are best friends with high frequency and day traders, it doesn’t mean you cannot keep them in your toolkit for medium-term or long-term strategies. That’s right, you might have to adapt your indicators a bit, but there is not real impediment to do it. Instead of focusing on short-term trends, you have to enlarge your moving averages a little to see the bigger picture, which could be even more profitable if you have enough margin.
Automated systems using technical indicators provide great profits without the heavy lifting:
Don’t you dare falling into this trap. Not going to say it’s a scam, but… it’s as close as it gets to it. Basic rule from now on: effortless profits it’s a red flag. As we previously said, each assets requires its own analysis scheme and that’s exactly why premade systems won’t get you. Spend some time (and coffee) analysing your portfolio and you will not regret when it gets all green.