Stick The Technicals Where The Sun Don't Shine
The first mistake with technicals is that they assume history will always repeat itself. The same patterns are expected to have the same outcome as the previous time; this is not true. Another flaw is that certain “standard” patterns (like head and shoulders, wedges, etc.) might be assumed to hold true for all stocks even if the particular pattern has not been seen for that stock before.
Nor do technicals ever consider the weather!
Technical analysis usually takes decades of practice. Even then, most tech investors will be wrong 70% of the time. Technical analysis does not have a set of infallible rules. Patterns can easily be confusing and conflicting. Stock trading never fits into cookie-cutter patterns.
A technical analyst will typically create his own rules for predicting stock patterns. Often he has too much confidence and ignores evidence that contradicts what he sees.
Technical analysis focuses solely on the short term. It is also detached from the fundamental analysis in that it tends to ignore considerations of a company’s actual profitability and value, Instead, technicals focuses on other investors’ perception of these things. You are following what investors imagine and not the cold hard truth.
It's foolish to think that historical stock prices influence future prices. It is equally stupid to think the pattern of a stock a year ago, will foretell the future movements of the same stock... witchcraft works better.
Furthermore, no system can account for all variables. The biggest risk in technical analysis is that it completely ignores market manipulation, quirks in trading, and the selling out of one or two major share holder for any one of a hundred different reasons. It also ignores sector manipulation, especially in the volatile oil and gas sector.
There are hundreds of reasons for institutions to sell their large position. Sometimes 2-3 institutions may go out at the same time for different reasons.
Moreover, focusing on technicals also can distract investors from the danger signs of a major fundamental change in the economy or the sector, something that may have been a contributing cause of the sell off.
Consider this: if technical analysis were worthy of great credit, investing in stocks would not require any skill nor would it involve any risk. You and I both know that is not true.
