Disadvantages of Technical Analysis

B

All of these reasons are cited by technical analysts as advantages of their method. One of the major advantages cited by technical analysts is the fact that technical analysis is not heavily dependent on financial statements. Technical analysts, as a community, are suspicious of financial statements, and believe that few fundamental analysts can identify relevant information in financial statements, and analyze the impact of this information on securities prices in time for superior investment returns to be realized.

Additionally, 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. Assuming that fundamental analysis can identify whether a security is over or under-valued long before the security experiences a significant price realization, the fundamental analyst is left with the daunting decision of when to buy of sell. Ideally, the fundamental analyst would like to invest his money immediately before a security experiences a profitable increase (or, for short sellers, a profitable decrease) in price, preferring to hold the funds to invest in other opportunities until the change in price direction is initiated. Technical analysts argue that because they do not invest until the move to the new "equilibrium price" is underway, they are more likely to experience ideal timing compared to the fundamental analyst.