Limitations of Technical Analysis

Curated By
Vishal Mehta
Independent trader; technical analysis evangelist

Skill Sheet: What You Will Learn Here

  • Know about the limitations of technical analysis
  • Use knowledge of limitations of technical analysis to become a better trader
  • Identify behaviour that limits you as a trader
  • Can you seek perfection in trading using technical analysis?

We now have a somewhat clear idea of technical analysis. The subject of technical analysis is very deep and requires years to master all the points in it.

But unlike fundamental analysis, a trader can start trading and making money even if he picks up one topic and goes deeper into it. He is spoilt for choices, given the vast array of indicators to work with apart from chart patterns, candlesticks, and noiseless price charts.

However, the trick to becoming a successful trader is not in having an in-depth knowledge of technical analysis but in using it. These days we hear and read about recommendations of technical analysts in media or working with brokers. But when it comes to trading, few of them are successful.

Why are technical analysts not successful?

Trading is more like a sport rather than a science or art, where knowledge and skills help. In fact, the most academically successful people do not make good traders because they bring their egos to the market. Having rarely been wrong in academics, these individuals take trading losses personally and, after not finding a fault, claim that the market is rigged.

But look at any sportsman. Their trait is a winner’s mindset, perseverance, discipline, and competitiveness, irrespective of the number of losses they face in their sporting career.

Being a successful trader is one of the toughest jobs in the world. While sports are mentally and physically taxing, trading adds the element of money, which makes decision-making extremely difficult.

Expert traders will tell you that technical analysis and strategies have contributed less than 20 per cent to their success. But technical analysis is still an important part of being a trader.

Without the knowledge of technical analysis, none of the traders would have been successful.

Technical analysts, on the other hand, are like the person who feel they can ride a bicycle or swing by reading about it. They do not have their skin in the game and have no idea of how to handle a trade emotionally.

The art of studying technical analysis

Technical analysis cannot be studied like one absorbs a subject in school. It cannot be mugged up, nor can it be deduced using equations.

Technical analysis is the study of high-probability situations that appear in the form of chart patterns or indicators. Trading is to perfect the art of dealing with uncertainty when low-probability situations are triggered.

Reading a particular concept is just the beginning of the journey. To absorb the concept, one has to look it up on hundreds of charts. Just like a tourist will click photos of a mountain, a trader, like a climber, will look for toeholds and grips on the mountain.

Looking at the chart is looking for these grips, which appear as opportunities in the form of patterns.

A trader or a technical analyst

Technical analysis is subjective, with thousands of parameters adding to the subjectivity. Yet it is rewarding even to the most advanced analyst and to a simple person who follows one simple pattern.

There is no end to the study and research of technical analysis. An individual who comes to the market should decide if he wants to be a trader or a technical analyst.

One can go to any depth in technical analysis, but will it be fruitful? The job of a trader is to make money. He need not be right with every opportunity he identifies. It is important to know when you are wrong and how to get out of the position rather than wait for the market to prove you right.

Thus knowledge of technical analysis should help you identify opportunities. That is what all patterns and indicators do.

Seeking perfection

Many traders left the market because they were seeking perfection. They were designing strategies with the expectation of finding a holy grail. As a technical analyst, it is important to know that no indicator, strategy, or pattern will be right all the time. They work in certain market conditions and perform poorly in others.

A student of technical analysis should remember there is no such thing as perfection in the market consistently. It’s a game of probability, where one Black Swan event can probably result in the worst trade of your life and destroys you or be the best thing that has happened to you.

Most professional traders who know what they are doing have come out successfully from every Black Swan that has happened in their market. It was not that they pre-empted the event, but they knew how to handle it and capitalise on it. That is exactly what technical analysis teaches you – identify opportunities to exploit.


Learning technical analysis is just the first step one takes towards their journey as a trader. To be a successful trader is to know yourself. Your weaknesses and strengths are reflected in your trading. It is no surprise that top traders are level-headed individuals who may not be at the top of their class but know how to handle situations with a cool head.

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