Introduce
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity
Technical Analysis -
Technical analysts believe that the historical performance of stocks and markets are indications of future performance. In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst's decision would be based on the patterns or activity of people going into each store.
When day trading, a trader makes the decision about what to trade, when to trade, and how to trade, using either fundamental or technical analysis. Both forms of analysis involve looking at the available information and making a decision about the future price of the market being traded, but the information that is used is completely different. Is it possible to use both fundamental and technical analysis together, but it is more common for a trader to choose one or the other.
Technical analysis is a method of forecasting price movements by analyzing statistics generated by market activity, such as previous prices and trading volume using charts and mathematical indicators to identify patterns that can suggest future activity, as it is based on the belief that the historical performance of stocks and markets are indications of future performance.
Despite the technical tool that is used, technical analysis actually studies supply and demand in a market in an attempt to determine what direction or trend will continue in the future by studying the market itself.
Almost every trader uses some form of technical analysis. Even fundamental analysis traders are likely to glance at price charts before executing a trade, as these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied.
Technical analysis is a method of forecasting price movements by analyzing statistics generated by market activity, such as previous prices and trading volume using charts and mathematical indicators to identify patterns that can suggest future activity, as it is based on the belief that the historical performance of stocks and markets are indications of future performance.
Despite the technical tool that is used, technical analysis actually studies supply and demand in a market in an attempt to determine what direction or trend will continue in the future by studying the market itself.
Almost every trader uses some form of technical analysis. Even fundamental analysis traders are likely to glance at price charts before executing a trade, as these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied.
Benefits of Technical Analysis
• Technical analysis focuses on price movement which is easily spotted at a glance through the charts.
• Technical analysis applies to all charts, whether they are 5-minute charts for day trading or daily charts for longer term trading.
• Trends are easily found as some indicators can quickly display a currency or security that is exhibiting a trend.
• Patterns are easily identified as charts displays previous patterns and help predicting future ones, as the market tends to repeat itself.
• Charting is quick and inexpensive as such technical indicators and tools are available via the net and they are automatically represented according to built-in calculations. Most brokers nowadays offer them to clients as part of their package.
• Charts and indicators can provide a huge amount of information in only a few moments. There are more than fifty kinds of indicators and each provides information on different aspect of how a currency or a security is moving.
• Technical analysis applies to all charts, whether they are 5-minute charts for day trading or daily charts for longer term trading.
• Trends are easily found as some indicators can quickly display a currency or security that is exhibiting a trend.
• Patterns are easily identified as charts displays previous patterns and help predicting future ones, as the market tends to repeat itself.
• Charting is quick and inexpensive as such technical indicators and tools are available via the net and they are automatically represented according to built-in calculations. Most brokers nowadays offer them to clients as part of their package.
• Charts and indicators can provide a huge amount of information in only a few moments. There are more than fifty kinds of indicators and each provides information on different aspect of how a currency or a security is moving.
How technical analysis applies can be different for each trader. Every trader has their own interpretation of where they see trends and support. They also have their own ideas on setting up their indicators. The indicators and charts can be simple or sophisticated as they can provide only the most basic information on a trend or support and resistance, or go much deeper to provide information on the strength of a trend, how momentum is building, and whether formations are developing that the can be traded.
It is important to understand that technical analysis is not an exact science, and may not always give accurate predictions of the market movement; however, it is very useful in trading. It makes up only one portion of what you need to know when trading, but it is a very important thing to learn. Understanding technical analysis will give the charts some meaning when you look at them and help you understand why certain price movements occurred.
