Advantages and Disadvantages of Technical Analysis

Disadvantages of Technical Analysis

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Question

Which of the following is not an advantage of technical analysis?

Answers

A. Requires the use of audited financial statements

B. Technical analysis is not time-consuming

C. Can catch market trends and reversals close to their occurrence

D. Does not rely heavily on financial figures and accounting statements

E. Does not assume that securities prices move in observable trends

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Explanations

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A. B. C. D. E.

One of the major advantages cited by technical analysts is that technical analysis does not rely heavily on financial statements. Technical analysts believe that securities markets "price in" material information gradually, and that securities prices move in identifiable trends and patterns. An astute technical analyst, it is argued, can identify superior investment opportunities by recognizing the implicit trends exhibited by securities prices and quantifiable past performance data. This belief is in striking contrast with the Weak Form EMH, and is arguably the greatest criticism raised against technical analysis.

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