TECHNICAL ANALYSIS BASICS
Price Discounts Everything
This theorem is similar to the strong and semi-strong forms of market efficiency. Technical analysts believe that the prices fully reflect all information available to the trading public. Because all stock information is already reflected in the price, it represents a fair value and should form the basis for analysis. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future.
Price Movement History
A security price is the product of the supply and demand forces of a company’s stock. The purpose of analysis is to forecast the direction of future prices. By focusing strictly on price, technical analysis has a very direct approach. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and the fundamental reasons given are given little credence. Technicians believe it is best to concentrate on “what”, rather than “why”. Why did the price go up? The answer is simple; there are more buyers than sellers, thereby creating more demand than supply. After all, the value of any asset is only worth what someone is willing to pay for it. Knowing “why” is irrelevant.
The markets move in trends caused by the changing attitudes and expectations of investors with regard to the business cycle. A comprehensive understanding of the historical relationships between certain price averages and market indicators can be used to identify current and future turning points. No single indicator can ever be expected to signal all trend reversals, so it is essential to use a number of different technical instruments.
The easiest way to grasp Technical Analysis, as it concerns working with graphs, is to start from understanding different indicators, what’s the underlying data that governs the position of the indicator on the graph and how to interpret this position. Next You could check out different chart patterns that are known to cause strong trends in the market. The skill of spotting and identifying a forming chart pattern is something You acquire with experience and time, however, once acquired, this skill will really aid the bearer in his/her trading career.
Technical analysis is the study of graphs and charts, looking at historical price movements, patterns and trends to predict future price movements. Different graph formations such as head and shoulders, double tops, and descending triangles are analyzed to identify potential buying or selling opportunities. Read more on Chart Patterns. Technical analysis is a powerful tool that helps traders to make informed decisions based on market trends and price action, and it can be used in conjunction with other trading methods to increase the accuracy of predictions. By mastering technical analysis, traders can gain a deeper understanding of market movements, helping them to make more informed and profitable trading decisions.