Hitesh portfolio

HAS TECHNICAL ANALYSIS STOPPED WORKING?

We have been in a downward spiral in our markets since past few weeks and the small and midcaps space has been hit particularly hard. A lot of technically bullish set ups have not worked out and a lot of stop losses have been triggered. And a lot of questions have been raised about the efficacy of technical analysis, citing the fact that since a lot of guys have started using technical analysis, it has stopped working.

I think technical analysis has been present since a long long time and there is no reason to believe that it will suddenly stop working. For that matter, fundamental analysis and deep dive investing also has been there since a long time, and we can have references to scuttlebutt methods dating back to Phiilip Fisher and his famous book… And still this method keeps working.

The problem I think is that a lot of Youtube gurus have suddenly popped up, providing a lot of quick fix do it yourself kind of courses. And while the aforesaid gurus might be doing so with good intentions and good content, the guys who do these courses tend to start practicing TA with half baked knowledge and methods.

Most of the breakout patterns/swing trading patterns are bullish in nature and need atleast a steady and preferably a strong bull market. And since last few weeks we have seen a market that has been drifting down most of the time with the frequent bursts of downward spirals especially in the small and midcap space. This kind of bearish sentiment is not suitable for trading the common bullish set ups like flags, cup and handles, 52 week highs, multi year highs, so on and so forth. We are more likely to see pattern failures, breakout retests etc in these kind of markets and that is what we are seeing now.

But as with most things in life, “this too shall pass”. And once bearish sentiments abate and markets regain their mojo, I expect the bullish patterns to start working again, maybe to varying degrees. But those who are pursuing technical analysis based investing/trading need to sharpen their skills and try to read up more on the subject and figure out what should be the best ways of finding out patterns that have a higher likelihood of working out. According to me, the best way to do this is to combine TA with fundamental analysis, which provides the necessary edge to find out what works with higher accuracy.