BLG chart, page-598

• False signals

One of the most annoying things for technical analysts is dealing with signals that turn out to be false breakouts. Sometimes, this happens because the system is too sensitive, or the price movements are all over the place; it’s like trying to catch a slippery fish.

Dealing with false signals isn't easy. A more cautious approach might wait a long time before confirming a breakout, missing out on potential gains. A smarter way to handle it is by deploying a weight-of-evidence approach. When you see multiple things like indicators and oscillators pointing in the same direction, it's more likely that the breakout is for real.

• Inefficiency in less liquid markets

Another limitation when it comes to technical analysis is that it might not work as well in markets that have liquidity problems. Why? Because the prices in these markets can be all over the place and hard to predict. Sometimes, big players in the market can make it look like there's a lot of demand for something when there really isn't.