7. Technical analysis

forex for beginners

Technical analysis

In your financial market trading, it is important that you employ technical and fundamental analysis techniques. These techniques will not only help you take note of what is profitable and what is not, but also ensure that your gains keep increasing. 
While a fundamental analysis will require that you keep track on financial performances of a company, a technical analysis will require nothing but chart reading. Technical analysis is the use of various aspects of the market to make a projection of prices. When doing Technical analysis, you will not require knowledge of anything else but the stock market performance of the company. Technical analysis will implore you to study the market itself and not its components. Depending on the method of choice, your analysis will lead you to classify yourself as a technical analyst or a fundamental analyst. 

Technical analysis creates its existence on the belief that trends in the market are repetitive. Therefore, your knowledge and application of statistical methods like charts are likely to make a projection of future trends. 

Technical analysis is a secure way of forecasting the prices and volumes. It is secure in the sense that it applies risk management strategies like stop-loss (S/L). Stop loss involves taking several measures before the execution of a trade. First, you must be aware of the price you are willing to pay and the right time to pay it. The same scenario applies to sales, and if you measure the returns and find that there is a high likelihood of the stock reaching the goals you had set, then you should go ahead. 

Another factor you should take note of is the fact that the market information ends up discounting everything. All the information, whether current, past or future if put in the market will reflect in indexes and prices of the stocks. Such information includes inflationary tendencies of the economy, interest rates, and announcements about earnings that have not yet been made. It is important to know that, these factors, known or unknown will end up being priced into the market at one point in the future. While it is difficult for participants to be all-knowing, the predictability of market behavior varies from a trader to another depending on the volume of information at hand. The discounting by the market is a key point on which chartists base their prediction methods. 
Chartists do not rely on the balance sheet like fundamentalists but the price movements. Technical analysis relies on price trends, recurring events, and market information.

 

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