Analyst bias
Technical analysis is not hard core science. It is subjective in nature and your personal biases
can be refl ected in the analysis. It is important to be aware of these biases when analyzing
a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis.
On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably
have a bearish tilt.
Open to interpretation
Technical analysis is a combination of science and art and is always open to interpretation.
Even though there are standards, many times two technicians will look at the same chart
and paint two different scenarios or see different patterns. Both will be able to come up with
logical support and resistance levels as well as key breaks to justify their position. Is the cup
half-empty or half-full? It is in the eye of the beholder.
Too late
You can criticize the technical analysis for being too late. By the time the trend is identifi ed, a
substantial move has already taken place. After such a large move, the reward to risk ratio is
not great. Lateness is a particular criticism of Dow Theory.

Always another level
Technical analysts always wait for another new level. Even after a new trend has been identifi ed,
there is always another “important” level close at hand. Technicians have been accused of
sitting on the fence and never taking an unqualifi ed stance. Even if they are bullish, there is
always some indicator or some level that will qualify their opinion.
Trader’s remorse
An array of pattern and indicators arises while studying technical analysis. Not all the signals
work. For instance: A sell signal is given when the neckline of a head and shoulders pattern is
broken. Even though this is a rule, it is not steadfast and can be subject to other factors such
as volume and momentum. In that same vein, what works for one particular stock may not
work for another. A 50-day moving average may work great to identify support and resistance
for Infosys, but a 70-day moving average may work better for Reliance. Even though many
principles of technical analysis are universal, each security will have its own idiosyncrasies.
TA is also useful in controlling risk
It is Technical Analysis only that can provide you the discipline to get out when you’re on the
wrong side of a trade. The easiest thing in the world to do is to get on the wrong side of a
trade and to get stubborn. That is also potentially the worst thing you can do. You think that
if you ride it out you’ll be okay. However, there will also be occasions when you won’t be okay.
The stock will move against you in ways and to an extent that you previously found virtually
unimaginable.
It is more important to control risk than to maximize profits!
There is asymmetry between zero and infi nity. What does that mean? Most of us have very
fi nite capital but infi nite opportunities because of thousands of stocks. If we lose an opportunity,
we will have thousands more tomorrow. If we lose our capital, will we get thousands more
tomorrow? It is likely that we will not. We will also lose our opportunities. Our capital holds
more worth to us than our opportunities because we must have capital in order to take
advantage of tomorrow’s opportunities.
It is more important to control risk than to maximize profi ts! Technical Analysis, if practiced
with discipline, gives you specifi c parameters for managing risk. It’s simply supply and demand.
Waste what’s plentiful, preserve what’s scarce. Preserve your capital because your capital is
your opportunity. You can be right a thousand times, become very wealthy and then get wiped
out completely if you manage your risk poorly just once. One last time: That is why it is more
important to control risk than to maximize profits!

How to know what to look for? How to organize your thinking in a market of thousands of
stock trading millions of shares per day? How to learn your way around? Technical Analysis
answers all these questions.