Tradeguider Blog

Empowering you to trade alongside the smart money through proven and pedigree methods and expert guidance that is with you all the way

Technical Analysis of the Financial Markets – Leading or Lagging?

Posted by Tradeguider Team on Mar 20, 2020 6:00:00 PM
Tradeguider Team

Technical Analysis of the Financial Markets

Technical analysis has been practiced in trading for a very long time now, but how reliable is it for today’s fast-changing markets? We explore the pros and cons of technical analysis of the financial markets.

The background of technical analysis of the financial markets

There are a few different ways to analyse a financial market. You might look at the underlying performance of the company, sector or stock. This fundamental analysis will tell you why something is happening.

Or you might decide that the price of the stock is a summary for all that background information. The analysis of a stock’s price movement over time is termed technical analysis (TA). It’s most common in the commodities and FOREX markets where short-term price movement is more significant than in stocks and futures, for instance. Technical analysis aims to tell us when something is happening.

If you like charts and equations, this is your happy place. Just be thankful we don’t have to construct those charts by hand any more. Proponents of technical analysis in financial markets say investigating price trends will build a picture of market sentiment, whether those trends are over the short-, medium-, or long term. That said, many use technical analysis for short-term market conditions, preferring fundamental analysis for a long-term perspective.

What kind of indicators are we talking about?

Technical analysis of the financial markets has been in use for more than 100 years, during which time many different indicators have been developed. For example, you have chart patterns, volume and momentum indicators, oscillators (like the Relative Strength Index or the Bollinger Bands), various moving average indicators, and support and resistance levels.

Technical analysis is underpinning assumptions

If you use technical analysis you accept the premise that the markets work in predictable ways, that past performance predicts future options.

While market activity is driven by human psychology we can see why this is a beguiling factor and somewhat true – witness the way that market behavior swings between bull and bear markets for instance. But we know that random things do happen, whether driven by market manipulation or not. Technical analysis of the financial markets doesn’t account for both the predictable and the unexpected. After all, it is fundamentally human beings that move the market, not computers using mathematical formulae.

Other failings and flaws of technical analysis

Critics of this kind of approach point out that technical analysis creates a self-fulfilling prophecy: if a large number of traders use the same indicators to predict market movement and they act accordingly, those indicators end up working because the number of people using them will have made the market moves they inspired.

Technical analysis of the financial markets is not universally effective: it works best in high-volume, liquid markets that are less likely to have unpredictable external influences that could create false signals, rendering it misleading. Some traders see it as being unreliable.

A fundamental flaw of technical analysis is that by the time the analysis has concluded, the market has already moved on. You might be three to five bars behind and miss the main part of the move. That’s why, quite often, the market moves in the opposite direction to that which your TA indicators told you to act.

Have you considered Wyckoff Volume Spread Analysis (VSA)?

If you’ve considered using Wyckoff Volume Spread Analysis in your trading, which identifies market moves in foresight not hindsight, take a look at the Tradeguider YouTube channel to see the trading system in action. Learn how Wyckoff VSA works and how it differs from technical analysis.

Tradeguider is the home of Wyckoff Volume Spread Analysis. As highly experienced experts in trading techniques and trends, we have a wealth of trading resources on our website, from ebooks and pdfs to webinars and videos. Our trading services include trade alerts for FOREX and futures, stock scanning, mentorships and courses to enhance your trading capabilities. If you’d like to chat with us about the differences between TA and VSA, get in touch with our experts today.

Posts Library

Five Steps to Consistent Trading with VSA Lite
Ways to Improve your Chart Reading - Part 3
A Newbie Trader`s Journey - Diary No 2
Ways to Improve your Chart Reading - Part 2
Ways to Improve your Chart Reading - Part 1
A Newbie Trader`s Journey - Diary No 1
Reset your Plans for Success - A downloadable Worksheet
2022, A Year in Review
Four Tips for Trading in Tumultuous Times
Currency Spotlight: British Pound/US Dollar
When Thinking Too Much Stops Your Trading Success
Tracking Your Trading Expenses to Maximize Profit
Stock Spotlight: Alphabet - GOOG
New Chances for Learning: June`s Mastermind Event
Is Technology Holding Back Your Trading? 5 Tips to Keep Your Tech on Point
Some Universal Rules of Trading
Should I Stay or Should I Go Now? Trade Entry and Exits
Trading Plans and Journals: Fail to Plan is Planning to Fail
How to Select a Stock
2021, A Year in Review
Introducing VSA Lite: a Gateway to the VSA World
Can Wyckoff VSA be Used to Beat High Frequency Trading?
The Best Way to Set a Trading Goal
Can Trading the Markets Ever be Ethical?
Do you Need Fundamental Analysis if you Use Wyckoff VSA?
An Affordable and Regulated Crypto Product
Diamonds, Art, Wine, Property....or the Stock Markets? We Compare Investment Options
Derivatives and Wyckoff VSA
Combining Technical Analysis and Wyckoff VSA - an Insider`s View
Trading Cryptos and Wyckoff VSA: 3 Things You Need to Know
Mindset Tips for Traders: 7 Ways to Help Your Trading Be More Consistent
Trading in the Time of Corona: 2020, a Review
Enhance Your Trend Trading Strategy with Wyckoff VSA Tools
How to Relieve the Strain of Chart Analysis with Trade Alerts
Politics and Trading the Markets
Q&A with Tradeguider CEO Gavin Holmes
How to Avoid Common Beginners Mistakes in Trading
Women in Trading: Insights from Female Traders Using Wyckoff VSA
Health Tips for Traders: 3 Ways to Improve Your Immune System
How to Trade Smarter with Rules-Based Trading Strategies
VSA FOREX Strategy: How to Use Volume in the FOREX Markets
How to Know When the Reversal is Coming in Countertrend Trading
Automated Trading Tools: Identify Opportunities at the Tops & Bottoms of the Markets
How to Gain a Competitive Edge by Following the Smart Money
How to Choose a FOREX Broker: 5 Things to Consider
4 Key Reasons to Use the Wyckoff VSA Trading Method in Your Strategy
The 10 Fundamentals of Choosing a Broker
When to Make the Leap from Demo Trading to Real-Life Trading
How Tradeguider's SMART Trader Software Reduces Chart Analysis Time by 80%
Why Wyckoff VSA (Volume Spread Analysis) is a Three-Dimensional View of the Market
Market Manipulation - Fact or Fiction?
Technical Analysis of the Financial Markets - Leading or Lagging?

Free Access to the Tradeguider  Resource Center

Become a VSA trader now. Access everything you need to learn to trade using Wyckoff VSA: educational videos, PDF’s, eBooks and courses. No software required.