TECHNICAL ANALYSIS

Technical Analysis is a very effective technique to find out trading opportunities in financial market on the basis of activities of market’s participants. The behaviour of the participants can be envisioned by creating stock charts. As time passes, patterns are created within these charts and each pattern shows a different meaning.

The commitment of a technical analyst is to find these patterns and construct an opinion. As the other techniques, technical analysis is based on a few assumptions. Of course, in order to succeed it needs to consider all the assumptions available. Everybody knows that there is nothing such as the best research methodology. Each research method has its own contribution and disadvantages.

There is no point to compare technical analysis and fundamental one so as to find out which of these is a better method. Both are efficient and brings different kinds of valuable information and thus are not comparable. To speak the truth, a wise trader would give time to himself to get the right education over both techniques so the trader will be able to identify superior trading and investing prospects.

Technical Analysis is quite often used by traders as a fast and easy technique to make an impact on the market. To be realistic, technical analysis is quite opposite to quick and easy. This means that if someone takes this approach as a way to make money fast without studying it before and knowing what this analysis can bring for you, then a disappointment is inevitable. 

Main points over Technical Analysis

TRADES

TA is suitable for short- term trades. TA should never be taken in consideration to recognize long-term investment prospects. Long-term investment decisions should be based on fundamental analysis.

RETURN PER TRADE

The traders based on TA usually trade in the short run. As mentioned earlier, the trader which is specialized in TA will not have significant returns from their investment within a few days. The trick with getting successful through TA is to know recurrent short- time trading assets which can offer small and regular profits.

HOLDING POSITIONS

Positions which are opened based on technical analysis are most likely to last in a short period of time, from a few minutes to a few weeks, but not more than that.

RISK MANAGEMENT

Every trader start a trading experience for a certain reason. If we suppose that for any kind of reason, the trade starts to make a loss. In this situation, what traders do is sticking to their loss with an expectation of recovering the loss. Remember that since you are trading in the short run, do not stick with the situation but reevaluate it by taking advantage of another technical analysis in a longer period of time, so you will get more information.

Technical analysis helps the trader to understand better what is happening in the marketplace and gain potential insight into what may happen next. There are five essential aspects to technical analysis that can, if better understood, help traders better determine when to open and close positions as well as offer clues to potential future price direction.

1. Market price action says all about it
A technical analyze is less interested in “why” an asset trades at a given price, and more interested in where it may be headed next.

2. The volume of trading offers important information
Many price movements – such as a breakout to a new high, for example – are generally considered to be of greater significance if accompanied by above-average trading volume.

3. Psychological factors drive the market in addition to fundamental values
Demand for a given asset increases or decreases based on the collective assessment that all traders make regarding the real or perceived value of that asset.

4. Prices tend to move in trends and patterns
Public perceptions can change quickly. Sometimes these changes affect perceptions regarding the overall stock market or broader financial markets in general.

5. Work to build your weight of evidence – not to find the Holy Grail
Trading signals can provide traders a clear set of criteria to look for and help them better identify potential trading opportunities.