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					Discover The Danger Of Technical Analysis

Word Count:
502

Summary:
Let’s cut to the chase…

The biggest and most critical danger of technical analysis is that, after
a while, it starts to show you exactly what YOU WANT to see!

In quantitative studies, there is a phenomenon where your research starts
showing you what you want to see instead of what is really happening and
that is known as “Data Mining”. Data Mining occurs most frequently when
there is a huge benefit to you if the results are showing one way instead
of another. This is t...


Keywords:
Technical analysis, investment, option trading


Article Body:
Let’s cut to the chase…

The biggest and most critical danger of technical analysis is that, after
a while, it starts to show you exactly what YOU WANT to see!

In quantitative studies, there is a phenomenon where your research starts
showing you what you want to see instead of what is really happening and
that is known as “Data Mining”. Data Mining occurs most frequently when
there is a huge benefit to you if the results are showing one way instead
of another. This is the exact same phenomenon in technical analysis.

In technical analysis, charts start showing you what you want to see
especially when you have made a mistake and needs the stock to go one way
instead of another! Suddenly, the deeper you dig into the myriad of
technical indicators, the more “evidence” you seem to find supporting
your mistake, giving you the eerie confidence that your mistake is going
to turn out just fine.

We all remember how that turned out, don’t we?

Technical analysis is essentially a study of the various ways to
interpret historical price and volume action in order to form an opinion
of future direction. Because technical analysis methods have become so
complex over the years with literally THOUSANDS of technical indicators
that have been developed, the average amateur investor can always find
ways to make a chart look the way they want it to and point towards a
non-existent future direction!

Before anyone here thinks that I am against technical analysis, I am not.
In fact, my main trading system, the Star Trading System is a technical
analysis based option trading system that has made me money over and over
again, year after year. So, what really is the problem? The problem is
the misuse of technical analysis and the misuse of incompatible technical
indicators! Until you really understand the formula and logic behind
every technical indicator, the purpose for which each indicator has been
developed for and what other confirming indicators works with each other,
you will never be able to use technical analysis to form an educated
opinion! You will continue to see only whatever you want to see. Some
call it “Analysis Paralysis”, I call it pure ignorance.

Sadly, it takes years of research and heaps of lost money to get
technical analysis right and it will only become harder and harder to get
right with ever more complex and new indicators being developed everyday.
A lack of knowledge and lack of time to attain that knowledge has always
been the bane of all amateur traders. That is why following a developed
and proven trading system with a proven, proprietary mix of indicators is
the best thing an amateur trader can do.

So, the next time you look at a technical analysis chart, remember, are
you merely looking to prove what you already have in mind? Because if you
are, then you are very likely to find all the evidences you need to
support your own views.

				
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posted:3/2/2010
language:English
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