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Does Technical Analysis Work in Nonliquid Markets?

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Technical anaylsis tries to profit from past price patterns. In order for this to work, the stock must attract numerous traders and investors. Afterall, isnt technical anaylsis a study of human behavior?

 

My question is can technical analysis be applied to non liquied markets? Wouldn't illiquid stocks be a victim of market manipulation? Isnt it hard to trade the charts under these circumstances?

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I am sure if you went through a hundred charts of illiquid stocks you will find cases where TA has workd and cases where TA has not.

 

I don't think its 100% correct to say TA works in every market. Afterall you trying to point out patterns from a chart and even by coincidence you will find a pattern that resembles technical analysis.

 

Pure technical analysists will probably argue that TA works even in nonliquid markets. But they fail to bring out the cases where it didnt work. If you are planning on trading nonliquid markets with strictly TA, my advice is go for it. Just keep your losses minimal and ride out your winners.

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I used to be a strong advocate of technical analysis but each day my feelings for TA is diminishing. There are some patterns that remain valid but I am starting to think that it has nothing to do with the pattern.

 

An ascending triangle is a pattern where a breakout to the upside is expected. However, to me this is simply price making higher lows and hugging the upper resistance line. Technicians choose to call it a pattern.

 

A bull flag is simply a small sell-off. There is simply more demand than supply. You can just watch volume to know price will probably lift instead of going crazy over a bull flag.

 

A head-n-shoulders pattern is simply price unable to test the previous high. There are sellers rushing in to sell before price can even test the previous peak. Isnt this an automatic bearish signal? Why bother making rules such as "Short the neckline!"

 

So technical analysis is slowly fading in my trading strategy. I am still trying to organize my thoughts on why I do not like TA anymore. But currently at the moment it seems like bunch of BS.

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I think technical analysis is still valid. They work because alot of people still follow them.

 

Yes, you are right about that. I would be wrong to say TA does not work completely. I cant quite explain it in words... somehow I dont like it. I think there are better methods to trade the markets.

 

I just think there is no need to follow patterns when all you need to look at is price action. Price and volume pretty much tells you all you need to know.

 

I am sure many traders would disagree.

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There is money to be made in these emerging markets but if you don't know what you are doing, you better stick with the markets you know.

 

Also, I am sure there are ways to get reliable information on a company. Why don't you contact their investor relations department?

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