We have spent 7 articles introducing common indicators, types, and schools of technical analysis. Of course, what we have cited is only the tip of the iceberg of technical analysis. There are many more complex graphics, indicators, indicators + graphics, etc. that are amazing. It is dazzling, and when applied in actual combat, different operating methods will occur due to different situations. So here comes the key point. After learning so many terms and types, can you make money? Technical analysis in the real capital market Is it useful?
The answer is "it depends". There are reasons why technical analysis has survived in the market for decades. However, whether technical analysis is useful or not, we believe it can be divided into micro and macro aspects. The micro aspect is more personal factors. , while the macro aspect is a factor that favors the market environment.
microscopic aspect
investor personality
First of all, we need to look at the user's personality. The same method will have different effects on different people. Some people like to pursue excitement and enjoy the thrill of rushing in and out of the capital market. Technical analysis may be more suitable for them than basic analysis, but if a person's mentality is easily affected by short-term price fluctuations, he will not be able to eat or sleep. If you don't know, then he may be more suitable for fundamental analysis, or the regular fixed investment method, which is DCA.
The length of the investment period
Different investment cycles will also have different applicable methods. Basic analysis is optimistic about the value of the company and believes that its reasonable stock price is lower than the current price. After buying it, it is usually held for a period of time, which can be as short as a few months or as long as a few dollars. years, so basic analysis is more suitable for long-term investment. Technical analysis focuses on short-term market fluctuations. The short term can be a hedge, and the long term can be a few weeks. The longer the period, the lower the effectiveness of technical analysis. Therefore, if you cannot hold on to the stock, you may have a lot of time to watch the market. Man, technical analysis might be a good choice.
Macroscopic aspect
If you have confirmed that your personality and time are more suitable for technical analysis, does this mean that this method is feasible? Not necessarily, it depends on how you use technical analysis and under what circumstances you use it. Compared with fundamental and chip analysis, technical analysis has the advantage of lower learning threshold, more immediate response, and clearer entry and exit signals. However, the disadvantage is that false signals are prone to occur, and it requires a lot of time to monitor the market, which may It will affect the quality of life of the trader, and it will also test the discipline of the trader. Careless operation can easily lead to small profits and big losses. Here are some macro factors that may affect the effectiveness of technical analysis.
There are many academic papers on the Internet that study whether technical analysis is effective. In so many papers, there are both agreeing and disagreeing positions, and they each put forward their reasons and statistical backtests. At first glance, they all make sense. . However, regardless of whether it is a positive or negative view, there is an underlying common law behind it, that is, "the effectiveness of technical analysis depends on whether the stock price approaches its theoretical price." This sentence sounds a bit cliché, but it is similar to the "efficient market hypothesis" that students in the economics department or business school used to learn. The so-called efficient market means that if the asset price fully reflects all available information, then such a market is called an efficient market. At this time, the actual price of the asset will be closer to its theoretical price (or reasonable price), and The more efficient the market, the less effective technical analysis will be. We can further use the two aspects of "financial market maturity" and "the current prosperity of the market at the time of investment" to explain whether the market is efficient.
Prosperity side: Technical analysis is more effective when the market is panicked
In a bear market, because market sentiment is relatively panicked, the probability of asset prices being mispriced (that is, the actual price deviates from its theoretical price) is higher. At this time, fundamental data cannot reflect the performance of the stock price. The more investors are Use technical analysis to operate. Here we can include some psychological content. There is a term in psychology called "self-realization". Typical examples are support lines and pressure lines. When more and more market participants believe that a certain price has a support and pressure effect, then the behavior of the participants will make this statement a reality. real. By the same token, when more and more people enter and exit the market based on technical indicators in a bear market, then the winning rate of using technical analysis will be higher. A foreign paper on technical analysis back-tested the performance of multiple hedge funds over the past period and found that in a bear market, funds that used technical analysis performed better than funds that did not use technical analysis, but when the market returned to a bull market , the fund performance using technical analysis is not necessarily better, and there are even signs of worse.
Financial market maturity: The more mature the market, the less effective technical analysis will be.
The backtest results also pointed out that the more mature financial trading markets, such as the Dow Jones, S&P 500, Nasdaq, etc. in the United States, tend to be more profitable than less mature trading markets, such as Thailand, Southeast Asia, etc. Efficiency, because the more mature the market is, the more valuable information can be reflected in the stock price immediately and fully, and the less useful technical analysis is at this time. The same principle applies to individual stocks. Usually, due to their large trading volume and more open and transparent information, the stock price of value stocks can fully reflect the disclosed information. Therefore, the effectiveness of using technical analysis on large stocks will be lower. Worse than small and mid-cap stocks.
summary
All in all, whether technical analysis is useful or not depends on a number of factors, including a person's personality, the length of the investment cycle, the maturity of the financial environment, the business climate at the time of investment, etc. It is difficult to say that there is a situation where technical analysis is 100% suitable. Only situations that are relatively suitable That’s all. In addition, if we want to go long in the investment market, it is very difficult to rely solely on technical analysis. Of course, we do not deny that there are such outstanding people, but after all, they are a very small minority. If we keep delving into it, we will easily fall into a state of obsession. . Therefore, at the end of this special series of articles, we also sort out some mentality when facing technical analysis, which will be revealed in the next and final article, so stay tuned!
