What Are Fundamentals Of Technical Analysis.by Mathhias Kuerpick Financial Writer
Analyzing a company from just its brand popularity is a difficult task. Hence there are tools to do this job in an easy manner. There are two types of tools that are generally used for analyzing a company. That is fundamental analysis and technical analysis.
In this chapter of ours, we will discuss what technical analysis is. What is the advantage of performing technical analysis, and what are the cons related to the same? So first jumps into the definition of technical analysis.
What is technical analysis
Technical analysis is the method to check the profitability of investing in a company by checking its investment, its income, its price moments, and its volume traded in the marketplace.
Technical analysis of price fluctuations and volume traded is done with the help of certain indicators.
Technical analysis helps a trader to easily scrutinize the effect of demand and supply on the prices of the product of a company and its volume demand in the market.
Technical analysis is useful in generating short-term trading signals out of a number of charting tools.
The good thing about technical analysis is that it can be employed on any underlying asset like stocks, complex financial derivatives, currencies, commodities, etc.
The concept used in technical analysis
The concept used in technical analysis is straightforward. A technical analyst scrutinizes the past trading activities of a company like price movements and the volumes utilized by the people. The analyst considers these activities as the indicators for the future of the company.
Technical analysis is completely based on statistical analysis and strictly follows demand and supply law.
Besides all, The above-stated things, mere technical analysis is not enough to predict the company's future growth.
Use and importance of technical analysis
Technical analysis is used to find the growth rate in terms of price fluctuation and volume traded.
With the help of various charting tools, a trader can easily judge whether investing in that particular company would be beneficial or not.
Using technical analysis, one can choose which strategy he could use to benefit from various trades so that the investor does not succumb to emotions in the most competitive trading markets.
After doing technical analysis, a trader becomes knowledgeable enough to find the best broker (InvestFW) for himself who provides the required set of tools for making money from various trades.
Market psychology could also be tracked by going through various types of charts used in technical analysis.
Pros of doing fundamental analysis
Every indicator or an analyzing tool has its own pros and cons. However, technical analysis is not solely responsible for telling the company's current state and market ranking. It is always performed along with fundamental analysis. We have listed some of the major pros and cons of technical analysis down below:-
Technical analysis only relies on hardcore data that comes from many charting tools; it does not involve any human emotions.
With the help of technical analysis, the analyst can speculate on the future price moments of the company, and it becomes quite helpful for big financial institutions as a little change can make a big difference.
Using technical analysis, one can speculate on the future market price of currency pairs. One can grasp an idea about how much one should invest in a single trade.
One can quickly get the idea about which trade is going to follow upstream and which downstream. And accordingly, a trader can decide which stand will be good for him, like selling for short or holding for long.
It also helps in finding the entrance and exit positions for a trader. A trader can precisely mark his entry and exit points by merely looking at the past market trend and anticipating the future trend.
A trader can easily mark the end of trend pints and make a profit just by analyzing the charts.
One cannot solely rely on technical indicators only. As predictions can turn out to be false or in other words, we can say that the future prices totally depend on market sentiments.
Trend-changing signals cannot be identified by only viewing charts; there are many other factors responsible for trend shifts. One can get a setback by only relying on charts.
Technical analysis is just a tool to get an idea of the market trend. It should be used as an assisting tool rather than totally depend on this. One should use his own experience or if someone is new in this field then he should take expert advice to earn something from the stocks.
Created on May 10th 2022 23:45. Viewed 147 times.