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Does Technical Analysis Work?

The title of this post looks weird. I am not trying to say that Technical Analysis doesn’t work, or those who say they make money through technical analysis are false. I know so many traders who make money through technical analysis. I have a different goal for posting this article.

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Life Doesn’t Have to Be Too Complicated, Does It?

Technical AnalysisSometimes, you really have to work hard to make money. There is no other options for you at least for that special period of time. Therefore, you have to be patient and happy with the situation you have until you find a chance to make a change in your job and income. But sometimes there are more options that some of them look better. For example some jobs make more money with less effort. Or, they make the same amount of money as the others, but they are easier. So which one do you choose? One of the jobs that make more or the same amount of money easier, or the ones that are harder and need more effort? You will choose the first option definitely.

It is the same with trading. There are tons of trading strategies that all of them make money. However, some of them need more time, energy, knowledge and experience, but the others are easier and need less time and energy.

Technical Analysis is the foundation of trading. However, it is not easy to make money through technical analysis. It needs time, energy, knowledge, experience, patience, and… to analyze the charts through technical analysis. I am good in technical analysis, but I believe there are easier ways too. Trading doesn’t have to be that complicated. In the last two articles I’ve published on this site, it is explained how I trade. I think you admit that my method is easier than technical analysis: I Trade the Daily Chart, But I Am a Day Trader

Here is the reasons I don’t use technical analysis to trade:

1. It Is Time Consuming

You have to spend a lot of time to analyze each chart, plot the support and resistance lines and then come to a conclusion. Sometimes you have to check several time frames for each currency pair. I know some people that spend several hours per day analyzing the charts to find a formed or forming trade setup.

It is not only the matter of the time and energy that you have to spend. There is something even more important. When you sit at the computer analyzing the charts for several hours, there is a higher probability of making mistakes, because you get tired or you ignore some rules by mistake, or your emotions take the control and decide. You will find out only after taking a wrong position.

2. It Is Not Always White or Black

There are some clear technical analysis rules, but when you refer to the charts to apply these rules, you will be faced with too many questions and doubts. You don’t know whether the lines that you have plotted are accurate and valid or not. You don’t know if the market will pay any attention to your lines or not. Sometimes you are 100% sure that you have plotted an accurate line, but later the market proves you were wrong.

Sometimes you get tired of not finding a good setup, and so you bear with a weak setup, because you think that taking a weak position is better than doing nothing. So you lose money because there is a higher chance of losing money when the setup is weak and is not strong enough.

In general, it is not that easy to locate an absolute white or black setup. Many of them are gray which makes it hard to decide. We set a stop loss, but that is also another important issue in technical analysis: Where to set the stop loss exactly?

There is no exact and precise rule for it. If you set a reasonable stop loss, then a long shadow can hit it easily while your position is correct. If you set a wider stop loss, then it can get hit and you lose too much (unless you calculate your positions size based on the stop loss size and the percentage of the risk you want to take) because your position was wrong and you had to be out sooner. They say that you should set the stop loss at the level that it gets triggered only when your position is completely wrong. Now the question is where that level is exactly. It is a little hard to answer this question based on the technical analysis. That is why different technical analysis traders have different answers for this question.

There are similar questions about the target or take profit level. There are several questions that none of the technical analysis experts can answer clearly because markets don’t move logically and mathematically. They do not follow some clear, precise and exact formulas. Therefore, it is not possible to give an exact and precise answer to those questions. The price movements is not logical. It is psychological.

3. You Can Lose Anyway

Let’s say you are experienced and knowledgeable enough to plot the lines exactly where they have to be. I mean the support and resistance lines you plot on the charts are accurate and valid and they are the “real” support and resistance lines. Still there are several different scenarios that can make some big differences:

When the price reaches a resistance line, it can reverse and go down or it can break above the line. If it goes down, it is possible that it turns around soon and try to test the resistance again. When will it turn around and how many times it will try to test the line? Nobody knows.

If it breaks above the line, the broken resistance should work as a support. Will it work as a strong support or it will be broken when the price retests? Will the price go up strongly after the resistance breakout, or it will retest the broken resistance line first and it will go up only when the line works as a strong support? What will happen if it breaks below the broken resistance line that was supposed to work as a support, and what should we do with the line if this happens?

These are the questions with no clear answer.

Once again, I emphasize that I am not trying to say that it is impossible to make money through technical analysis. What I am trying to say is that even if it is possible, it is literally too hard for most traders. I am really good in technical analysis, maybe even better than many of those who are making money through technical analysis. But I don’t like to choose the hard way to make money, because there are some much easier ways to do that.

4. Technical Analysis Is Not Mechanical

In technical analysis, you have to “analyze”, interpret and predict. This is not only time consuming, but it can cause you to make mistakes and choose the wrong way. Finally it is the market which is always right, not your analysis. A mechanical technique that shows the way clearly and without having to analyze and interpret too much is much better. Our stop loss can be triggered sometimes even with a mechanical trading strategy, but it is better than losing after spending too much time on analyzing each chart based on a too hard and complicated system.

What Is the Solution?

I prefer a trading strategy that is much easier, needs less time, and is either white or black. Does such a system exit?

There is no “white or black” system, but with the system that I use at least it is easy to distinguish and ignore the “gray” conditions, whereas with technical analysis it is almost impossible to do that. Sometimes you will get caught even when you are 100% sure that you are right.

I use candlesticks and Bollinger Band, and I have a few rules and conditions to take positions or set the pending orders. When they are met, I am in. Otherwise I stay out.

I see the setups (if any) as soon as I look at the daily charts. I do not have to plot any lines, and I do not have to analyze and interpret. I do not have to wait for something to form. I check the daily charts every day when the daily candlestick is closed. If there is a setup already, I take it. If not, I go and come back the next day. It takes me less than 30 minutes every day to check 15-25 daily charts. My success rate is better than those who sit at the computer and analyze the charts for several hours per day. Not only my success rate is better, but I locate more trade setups every week, because my system is simpler.

Now tell me which one you prefer to choose? A trading strategy that needs too much time and energy and is technically hard and complicated, or a trading strategy which is much easier, needs only 30 minutes per day and it makes even more profit?

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"Whether you think you can, or you think you cannot, you are right." - Henry Ford

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42 thoughts on “Does Technical Analysis Work?
  1. Diego says:

    I’m thrilled about your trading system! Really hope to see more about it. I see this website has lots of VERY useful resources and explains concepts in a clear way. Thank you for time, kindness and good work!

    • Jovita Mbah says:

      I dont think anyone prefer difficult way to make money trading but they choose technical analysis because they believe it will give them more profit.

  2. Tony says:

    interesting articles kamel…..which are the 20 pairs you check each day?….. i have to say i tend to steer clear of most pairs but at the cost of having fewer trades….

    • LuckScout says:

      EURUSD, GBPUSD, USDCHF, USDJPY, GBPJPY, EURJPY, USDCAD, AUDUSD, NZDUSD, EURGBP, GBPAUD, GBPCAD, GBPCHF, EURAUD, EURCAD, CHFJPY, AUDJPY, CADJPY, AUDCAD, Gold.

      • Stanley says:

        Hi Kamel,

        Could you add S&P 500 to your coverage? Just one index, I will not ask for more 🙂

        Thanks in advance!

        Stanley

      • Nics Anikitos says:

        Thanks so much you have a wonderful explanation in your both articles so far, I have got your reasons as why of all the systems you chose LuckScout system.

        Now my question here is; What could be your logical reason as why you chose the twenty pairs?

        Minus exotic pairs, I almost have 30 pairs! on my charts this could probably mean some could cause me errors or what?..

        Once again I’m deeply appreciative of your last two articles on your daily system. and please let me know if you have written others already so I could read through:)

        God bless and all the best for you Guys 🙂

        • Nics,

          You are welcome.

          Now I have 28 pairs plus gold and silver on my trading platform. Since I started writing on LuckScout I added more pairs to my platform because people ask about some of those that I didn’t follow, and to give them an answer I had to have them on my platform. After a while they could find a room on my computer screen 🙂

          I think following the main pairs that are not choppy and are liquid is enough. Following too many pairs doesn’t mean more profit.

  3. Tom says:

    Hi Kamel

    I love your system of trading, and I look forward to more articles and examples.
    I would like to ask you, you trade also during day, when is ECB or FED press conference?
    Sorry my english isnt good 😉

  4. Ben says:

    Thank you Kamel your approach is extremely helpful to organise my gray stuff. Especially since I fall in the analysis paralysis trap very easy.

  5. Agyusant says:

    Thank you Kamel… for inspiring me…!!!

  6. Asiri Kaluararchchi says:

    thanks Kamel….
    we encourage with this article and really it look like easy… I’ll try your system..

    looking for more strategies…

  7. Barbara says:

    Hi I am currently playing catch up with your back articles. What time does the daily candles close is it 2300 GMT?

  8. Zeeshan says:

    Why we should not go with price action strategy? if market is moving in a range then how can you take the profit from market by using boilinger band?

    • Chris says:

      That is also possible to make money when market is ranging. When candlesticks hit the top and bottom of the range and form signals, we can get in. Bollinger Bands breakout also helps in this case.

  9. Theo says:

    Thanks for your educative and informative advice. Pls what is the symbols for Gold as I find it hard to locate it in my platform

  10. san says:

    What is your exit strategy. I am having trouble finding a decent exit criteria

  11. willy says:

    Am trying binary trading and have not made it yet, do u have some notes for binary trading

  12. Kuskas says:

    Hi Chris, I like writing style of Kamel, same simple as yours, very easy to understand.
    But, it months since I have not seen any Kamel article. Hopefully, someday he will comeback to share with LuckScout community.

    Regards

  13. TJ says:

    Big thanks to Kamel for sharing his experience. I really like your approach Keep It Simple.

  14. Valdas Ly says:

    Hi Kamel,
    I learning from You and from Chris.
    Everything seems simple, impressive,valuable and
    inspiring!
    Thank so much!
    God bless You!

  15. Jonathan Johansson says:

    The more I am reading articles, the more I become interested on.

  16. Oesha Roopram says:

    Reading Kamals articles for the third time. Want to become a trader like Kamal. Thank you for your inspiration Kamal.

  17. julius abidoye says:

    All information in this website are awesome! Thanks for the article sharing.

  18. Charles Booth says:

    Thanks for sharing Kamal.

  19. Nadi brh says:

    Hi Chris and Kamel

    To use this trading system, what you have shared is enough or it is not possible to use it as you have mentioned that you just shared a little about your trading method?

    Thanks a lot

  20. muhammad ashraf says:

    very nice Both persons thanks

  21. drsa1970 says:

    I hate technical analysis as well!

  22. fawaz bamakrait says:

    Thancks chris &kamel.
    i have a little story,i’ve made a trading competition for my family and friends in my group ,coz i teach all of them what ever i learn from this site,the supersize was my wife won the game ,the question is how come ,the answer is i taught them how to trade if u see a daily bearish candle go south,if u see bullish candle go north,put the stop lose and the target based on our trading system that’s all ,my wife entered several trades and didn’t open her laptop for quite long time ,all of a sudden we found out that she has doubled her account in almost two month ,that was an amazing results ,i really couldn’t do my self. so yes it’s true keep it so simple(kiss).

  23. Ben Aqiba says:

    Hi Chris,

    do you still trade with the same currency pairs ?

    Thank you

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