Technical analysis matters, but its limitations are important to recognize – JP Morgan
|Technical analysis is a method of evaluating financial assets using mathematical calculations based on prices, trading volumes or open interest in futures and options. Does technical analysis matter? Economists at JP Morgan analyze the technical aspects of market forecasting.
Technical indicators have been reliable signals for short-term market performance
The issue with technical analysis is that while it can be very effective at predicting daily performance, it is less helpful when looking out into the more distant future. For that, fundamentals are much more effective: for example, S&P 500 forward valuations alone have historically explained almost a third of subsequent five-year annualized returns.
As a result, professional day traders may benefit more from technical analysis, whereas long-term investors will see more fruitful results by relying on fundamentals. In other words, technical analysis matters, but its limitations are important to recognize.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.