In the world of trading, many traders fall into the trap of using technical analysis. The reason they feel the need to use technical analysis is that they have heard about how good it is or because they have seen its great return on investment. I want to discuss the benefits of technical analysis and how well it works so that you can trade safely and profitably without the use of technical analysis.
In the past, technical analysis was a viable tool in forecasting and helping to execute trades. But there are some factors that has made technical analysis less useful now than it used to be. To start with, there is the fact that many of the indicators that were most successful and reliable have turned bad or become unreliable. Some of these indicators are the following:
* The Relative Strength Index (RSI): The RSI is unreliable, is affected by a large number of variables, and gives high levels of commitment. With this indicator, the trade will be executed when the price touches the 20 period moving average. Now, moving averages are affected by the momentum of the price and will also tend to lag the price. It is a measure of the most unstable of the indicators, which gives you the worst possible results.
* The Stochastic: The Stochastic has the ability to make you trade against your trade, and with such a unreliable indicator, is a terrible predictor. You must know that the Stochastic is the rate of change of the price. Now, the rate of change indicator gives you a measure of the rate of change. But it shows all price changes which is good, except for one problem it shows an up and down trend of the price, which is bad.
* The MACD: The MACD is another indicator that gives you the worst possible results. With the MACD, there are many variables you must know. The MACD is the direction indicator, which causes the price to go up or down, but does not give you the strength to predict the direction. The MACD is the most unreliable indicator.
* The RSI: The RSI is another indicator that is unreliable. The RSI is not a fundamental indicator, and because it is an indicator does not have any specific direction. The RSI shows a value over 30 that is a low and also the value over 50 that is a high. Now, the RSI is not reliable. It is another indicator of the instability of the RSI, and shows up some price action that moves between the two. This instability causes the RSI to be unreliable. If you find a solid, fundamental indicator, then use that.