I do not like to contract Technical Analysts when they predict future because their predictions can come true. But I do believe that a Technical Analyst is no match for the collective wisdom of millions of investors and traders. A technical analyst has number of tools that worked in the past. He tries to predict future using the tools that worked in the past. Technical Analysis most often does not produce the same results because nothing remains the same on two occasions.

Once upon a time I was a big fan of Technical Analysis. It was in 1992 that I started taking classes on Technical Analysis. At that time there were not many services providing soft wares for Technical Analysis. Internet has just arrived in India and our telephone lines were very slow to transfer data. In spite of the problems I bought a software from Capital Markets paying more than Rs50000. Its name was something like ‘Capitaline series’.
This gave me more confidence because there were not many people who had such software. I had access to charts on all indices and stocks. I could analyze any stock within minutes. Armed with such superior tools I had no doubt that I could make millions from stock markets.

Using this software I started trading in the markets. To my utter surprise I found that short term trading using this software produced more losses than profits. At the same time I found that Technical Analysis is a wonderful tool for investing and it does not work with illiquid stock. I could not under stand the difference at that time.
After many years of losses in day trading wisdom dawned in me. There is big difference when we use technical analysis for short term trading. All markets have long term trends. These trends can be bullish, bearish or neutral. Technical Analysis gives clear signals when a long term trend changes. Therefore investors can use the information to book profits, to enter in a stock or remain invested.
However in the short term, there are many noises in the market and most often noises are more predominant than main trend. This results in false signals. For example people were predicting 10-15% fall in Nifty last week. I do not say that it could not happen. However a person shorting Nifty following the prediction is in big problem now. How much can he wait? Analyst has an easy answer ‘put stop losses. Then comes the level at which stop loss is to be put. Once a stop loss is put is very common that markets takes the stop loss and somersault.
In my opinion it is better not predict short term trends for trading as it results in losses more often.

Cyriac J. Kandathil, Chief adviser AssuredGain.com