Quick answer: Traders use technical analysis because it gives them a consistent, rule-based way to read price charts, spot trends and decide in advance where to enter, exit and limit losses, in any market and on any timeframe. It does not predict prices reliably, and it cannot remove risk. Most short-term retail traders lose money: in a September 2024 study, India’s market regulator found that over 93% of individual futures and options traders made losses over three years.
There are many ways to analyse price movements, and the right one depends on how you trade. In currency and stock trading, analysis is usually grouped into three types:
- Fundamental analysis looks at the economy, interest rates, company earnings and other underlying drivers of value.
- Technical analysis studies past price and trading-volume data, usually on charts, to identify trends and patterns.
- Sentiment analysis tries to gauge the mood of market participants, for example from positioning data or news flow.
Technical analysis has a large and loyal following among short-term traders. This article explains why, and where its limits lie. An earlier version presented it as close to a scientific formula for predicting the market. That was misleading, and we have rewritten the article to give a balanced view. It is general information, not investment advice.
What technical analysis is
Technical analysts assume that much of the available information is already reflected in the price, and that prices tend to move in trends that can be identified on a chart. Common tools include:
- Trend lines and moving averages, which smooth out price data to show the direction of a trend;
- Support and resistance levels, where buying or selling has repeatedly stopped a price move;
- Momentum indicators, such as the Relative Strength Index (RSI), which try to show when a move is weakening;
- Volume, used to judge how strong a move is;
- Chart patterns, such as breakouts and ranges.
Why traders value technical analysis
It gives a framework for reading price movement
Prices are moved by international news, central bank decisions and countless individual orders. No individual can read every piece of information and work out how it will affect the price. A chart summarises how the market has actually reacted, so many traders use it as a practical shortcut. Professionals who rely on data often use technical analysis alongside other methods rather than instead of them.
It works on historical price data
Technical analysis uses the history of prices and volumes, not the history of news events. Some traders prefer this because it relies on observable data rather than on judgments about why something happened. Brokers’ trading platforms, such as those offered by Saxo Hong Kong, provide historical price charts and indicators so traders can study how a price has moved before deciding.
The earlier version of this article said that “prior history does not affect the present”. That contradicted the method itself: technical analysis assumes past price behaviour can help identify trends, though it can never guarantee they will continue.
It encourages rules and discipline
Traders who prefer a systematic approach like that technical analysis turns decisions into rules: enter when a condition is met, exit when another is met, and set a stop-loss in advance. Clear rules can reduce impulsive decisions driven by fear, greed or personal bias, which are a common cause of losses. Our article on why you should never rely on luck in trading covers this in more depth.
It applies to almost any market
The same chart-reading skills can be used for shares, currencies, commodities and indices, and on timeframes from minutes to years.
The limits of technical analysis
An earlier version of this article said that a person who masters technical analysis can successfully predict the trend. That is not true, and it is the most important correction here:
- Signals often fail. Patterns and indicators give false signals, especially in choppy markets without a clear trend.
- Sudden news overrides charts. An unexpected rate decision, result or political event can move prices far beyond any chart level.
- Past results can mislead. A strategy tuned to fit historical data may stop working in live markets.
- Costs add up. Frequent trading means more brokerage, taxes and spreads, which can turn small gains into losses.
- Interpretation varies. Two analysts can read the same chart differently.
Research on whether technical trading rules beat the market consistently after costs is mixed. Treat technical analysis as one tool for managing decisions and risk, not as a way to forecast prices.
The risks of active trading, in numbers
The Securities and Exchange Board of India (SEBI) has published two studies that show how hard short-term trading is:
- Futures and options (F&O): SEBI’s September 2024 study found that over 93% of more than one crore individual F&O traders made losses between 2021–22 and 2023–24, averaging about ₹2 lakh each including transaction costs. Their combined losses exceeded ₹1.8 lakh crore.
- Intraday trading: SEBI’s July 2024 study found that over 70% of individual intraday traders in the equity cash segment made losses in 2022–23.
Leveraged products such as F&O, contracts for difference (CFDs) and margin forex can lose money quickly, and some can lose more than you put in. Only trade with money you can afford to lose, use stop-losses, and size each position so that one bad trade cannot do serious damage.
Rules on trading tips in India
If you follow technical “calls” from social media, check who is giving them:
- In India, only SEBI-registered investment advisers and research analysts may give investment advice or buy/sell recommendations on securities. You can check a registration on SEBI’s website.
- Under a SEBI circular of January 2025, people who present themselves as offering only education must not use market price data from the preceding three months to talk about or display specific securities, which prevents live tips being disguised as teaching. SEBI also bars regulated entities from associating with unregistered “finfluencers” who give advice or make performance claims.
- Promises of guaranteed or “sure-shot” returns are a warning sign.
Do you need a professional trading platform?
The earlier version of this article claimed that without a professional trading platform no one can make the right decision. That is an overstatement. A reliable broker with clear charts, accurate data and low costs certainly helps, but no platform makes trading decisions right. Learning how markets work, testing a strategy on paper first, and controlling risk matter far more. In India, trade only through a broker registered with SEBI; see our guide to how online share trading in India has changed.
Frequently asked questions
Is technical analysis reliable?
It is a widely used way to structure trading decisions, but it is not reliable as a prediction tool. Signals often fail, and results depend heavily on risk management and costs.
Is technical analysis better than fundamental analysis?
They answer different questions. Fundamental analysis looks at what an asset may be worth; technical analysis looks at how its price is behaving. Many traders and investors combine both.
Can beginners make money with technical analysis?
Some do, but most short-term retail traders lose money, as SEBI’s studies show. Beginners should learn first, practise without real money and never risk money they cannot afford to lose.
Which indicators do technical analysts use most?
Common ones include moving averages, the Relative Strength Index (RSI), MACD, Bollinger Bands and volume, along with support and resistance levels.
For related reading, see our tips on the forex market.
Checked in October 2026 against SEBI’s 2024 studies on F&O and intraday traders (as reported by Business Standard and others) and SEBI’s January 2025 circular on regulated entities and unregistered finfluencers. Trading involves the risk of loss; this is general information, not investment advice.
