Is technical analysis useful? How should technical analysis be used?

First,

Technical analysis is useful.

The behind-the-scenes of technical analysis is actually behavioral finance.

It is driven by human nature’s greed and fear.

But greed and fear can only dominate short-term stock price fluctuations.

Longer-term trends require support from fundamentals and macroeconomic environment.

Note that here, fundamentals do not refer narrowly to a company’s profitability.

Therefore,

There are mainly two ways to use technical analysis.

The first way,

To identify the major trend.

Many veteran investors pay close attention to a stock’s weekly or even monthly chart.

This is because,

Charts at the weekly level and above,

Have filtered out short-term fluctuations,

Allowing us to see the trend of fundamental changes.

If combined with research on fundamentals and macroeconomics for secondary validation,

The success rate can be very high.

The second way,

Is to find short-term buy and sell points.

Based on the confirmed major trend,

It is necessary to find entry points.

Some people may also do high sell and low buy in between.

All of these can be assisted by technical analysis.

Including the final profit-taking exit,

It can also be done by using technical analysis to find selling points.

When the overall direction is uncertain,

The success rate of technical analysis is roughly comparable to flipping a coin.

It’s not hard to understand why many people always think technical analysis is useless.

It’s like a sharp sword,

In the hands of a three-year-old child,

It only cuts and injures itself.

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