Technical Trading and Why It’s Nonsense

Technical trading is a method to extract as much commission from you as possible. Often, brokers will use terms like the “stock is above its 30 day average”, “head and shoulders”, etc. Technical trading claims to be able to predict stock market direction based on past relationships from graphs and lines on the chart. The claim is false, as the movements of individual stocks are random. How a stock moved in the past has no effect on how it moves in the future.

In general, the commission for stock trading can be many times greater than what you may think. One part of the commission is the advertised price: $9.99 per trade. A much larger part is the spread. For instance, if you order a stock sold at $40.00, brokerage firms do not actually sell until it is a little past that point (say $40.125 or more). They only give you $40, less commission, and keep the difference. If you order a stock at $40.00, brokerage firms do not buy until it is a little below that point (say $39.875 or less). They charge you $40.00 plus commission but only spent $39.875.

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