Exploring the ins and outs of Technical Analysis in Economic Investment Theories

Technical analysis is very hit-or-miss. Long story short, technical analysis assumes that the stock market follows a certain pattern of ebbs and flows (ups and downs) that can be traced. These patterns then are assumed to best help in determining which stocks are going to be successful in the future and which ones will not be.

Now, there are a lot of critics of this strategy, and the main reason is because of the premise of it. The fact is, yes, the stock market does ebb and flow, but the issue is that the flow is very hard to determine. Sometimes, unexpected things happen, and people who are dependent on technical analysis do not have a lot of wiggle room when the stocks that they thought were going to soar, end up sinking.

Technical analysts also have to be incredibly active in their trading. Where a fundamental analyst does a lot of preparatory work in order to keep a stock in the market for awhile, a technical analyst has to almost be obsessive with watching the stock market. They need to be quick decision makers, because when a stock does worse than they estimated it would, they need to get out of the situation and quickly.

This strategy is also incredibly analytical. It would take a long time to write exactly what goes into this strategy, but the analysis involves more charts and graphs (because of the long term tracking of patterns) as opposed to the table approach a fundamental analyst uses. A fundamental analyst looks only at the present to estimate the future, whereas the technical analyst uses the past to determine the future, and only uses the present to determine where in the pattern the market currently resides.