Time Crunch Trading

The strong advantage of technical analysis when used to trade and/or analyze the financial markets is that it can be applied in any time frame. It was noted in the section on fundamental analysis that the results thereof are not readily applicable in short-term trading. The same is not true of technical analysis.

Regardless of whether you are operating in a timeframe measured in minutes or months, the same tools and techniques can be applied. It all comes back to behavior patterns. They are not timeframe dependent.

Markets can develop trends and trading ranges in minutes just as readily as months. It is just a matter of scope.

For that reason, you can use the vast majority of charts and indicators in all time frames and across all markets. This is one of the biggest reasons so many traders, especially those with a short-term timeframe, flock to technical analysis.

Those who oppose technical analysis point to several problems with the application of its methods.

Subjectivity: Certain elements of technical analysis, like chart reading, do not necessarily have objective interpretation. That is why technical analysis is sometimes referred to as more art than science. It is also where individual trader biases can come in to play. This is certainly true in some regards, but there are plenty of objective technical methods.

Self-Fulfilling: Technical analysis is said to be self-fulfilling in that the more people applying its methods, the more likely the expectation of the analysis is to come to pass.  While it would be true that if everyone used the same or similar techniques such a thing could occur (and it has been known to happen in short time spans in the absence of other influences), the subjectivity of some methods, the diversity of techniques used (non-technical included), and the fact that traders operate in different time frames means a lack of unified approach.

Unreliable: Since the past (upon which technical methods are based) does not often repeat exactly, meaning sometimes the product of the analysis turns out not to be correct, the methods can be considered inconsistent.  The question which must be asked, however, is whether that matters if the trader is able to make money.

A legitimate additional criticism of technical analysis is the ease with which it can be applied. Because technical methods are so readily used with seemingly little effort, new traders often gravitate to them as the easy solution. After all, most trading platforms these days come replete with numerous technical tools. This can actually be a major negative in that unprepared traders can experience an illusion of knowledge and control.

That isn’t to say technical analysis cannot be effectively and safely employed, though. Like any other risk-taking venture, it requires a thorough understanding of both the application of the methods and the risks involved.

Moving forward, with fundamental and technical methods covered, we are left with the third part of the market analysis triangle.

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