Do professional traders use technical analysis?

Most traders use technical analysis for short-selling options, derivatives, short-selling stocks, etc. (see also this explanation of technical analysis).

Why does technical analysis only work for short-selling trades if options and stocks are not short-selling?

Technical analysis is not useful as a hedge against short-selling in option contracts, because the short-sellers do not consider option contracts to be a short-selling instrument. Even if they thought that the option contracts were a short-selling instrument, they are only aware of the contractual nature of the option, so they do not consider the option to be a short-selling instrument in their short-selling strategies. They consider it a speculative instrument so they do not consider the option to be a short-selling instrument in their short-selling strategies.

Therefore, when one considers technical analysis to be useful in a position, rather than a general strategy, then it only works when the position has a specific market profile, because otherwise the strategy would not work.

The “pattern” approach works for short-selling and is a good way of finding short-sellers. However, many of today’s sophisticated short-selling strategies work using a “pattern” approach.

Why is technical analysis a bad strategy when it comes to trading stocks?

Technical analysis is a bad strategy when it comes to trading stocks because, if you use technical analysis to identify a market trend, you will be forced to use long-term strategies instead of short-term strategies to take advantage of the trend and avoid the long-run downside. There are many reasons to avoid doing this.

Why are there so many technical analysis rules?

Technical analysis is based on quantitative techniques (like using the mean and “deviation”) where one only has one rule. This creates many rules and therefore different techniques and concepts. The most “complex” rule is the correlation with respect to which rules that have been used by the same person should be used for a given trading session.

Another rule, called the limit order in technical analysis, basically says that one cannot use technical analysis techniques that do not use the market order, otherwise the strategy will lose on the long side and may even get wiped out. Another rule, called the trend line, basically says that if one moves down the trend line, then one moves up the trend line. This rule is usually used mainly in short positions.

Technical analysis, technical indicators, correlation with respect to the market order