What it is
Technical analysis looks at charts of price and trading volume, not at the companies themselves. The idea is that patterns in past prices say something about future prices. The patterns are summarised in indicators.
| Indicator | What it measures |
|---|---|
| Moving average | The average price over a set number of days. A price above the average is read as an upward trend. |
| MACD | The gap between a short and a long moving average, compared with a signal line. Crossings are read as buy or sell signals. |
| RSI | A scale from 0 to 100 for how fast the price has moved recently. Above 70 is commonly called overbought, below 30 oversold. |
| Oscillators | The family of indicators that swing between fixed levels. RSI is one of them. |
What the research says
A review of the literature counted 95 modern studies: 56 found positive results for technical trading strategies, 20 negative and 19 mixed. The authors add that most of the studies have problems in how they were tested, such as rules picked after the fact and difficulty estimating transaction costs.[1]
A later study tested trading rules on the Dow Jones index from 1897 to 2011 with stricter methods. It found that an investor could never have picked the future best-performing rules in advance, and that even the historical performance was completely offset by low transaction costs.[2]
What happens to people who trade a lot
These two studies measure active trading in general, not technical analysis specifically. Among 66,465 US households from 1991 to 1996, those that traded most earned 11.4% a year while the market returned 17.9%.[3] Among Brazilians who day-traded futures for at least 300 days, 97% lost money.[4]
Why it is hard
- Costs. Every trade costs commission and spread. A small edge disappears quickly.
- Hindsight. A rule that worked in the past may have been chosen because it worked in the past.
- Competition. The other side of the trade is often a professional firm with faster systems and better data.
Common questions
Is technical analysis useless?
The research does not say that. Some studies find profits in some markets and periods. What it does not show is a method that private investors can rely on to beat a broad index after costs, year after year.
Can I do both?
Yes. Some people keep most of their savings in a broad index fund and trade actively with a small, fixed amount they can afford to lose. Keeping the two apart protects the long-term savings.
Sources & further reading
We cite independent authorities so you can verify everything yourself. Last reviewed 15 Sept 2026.
- Park & Irwin (2007) — What do we know about the profitability of technical analysis? Journal of Economic Surveys 21(4)
- Bajgrowicz & Scaillet (2012) — Technical trading revisited. Journal of Financial Economics 106(3)
- Barber & Odean (2000) — Trading is hazardous to your wealth. Journal of Finance 55(2)
- Chague, De-Losso & Giovannetti (2020) — Day trading for a living? FGV EESP working paper 525