Friday, December 12, 2008

Danger of Technical Analysis

If you know charts, then you probably should know there is a X and Y axis.

In technical charting, X axis is usually Time.  The Time can be month, week, day or even minutes.

Understanding the reasons behind technical chart is tough, but using it is very simple.

For example, chart below has 3 graphs in it.

1.  the top graph show the price info, its called candle stick ( don't worry, will be shared more later )
2.  The below 2 graphs are analysis telling you when to buy and when to sell
3.  when the red line cross above, BUY.  when the red line cross below, SELL.

Now back to the danger part.  Below chart is shown in a 5 minutes X axis.  Both signals are asking you to BUY

However, below is another chart showing exactly the same stock but in 1 minute duration.  In this chart, the signal is telling you to SELL !

Although this may be confusing but even the best Technical Analyst in the market sometimes make mistake forgeting to counter check the X axis and recommend wrongly.