Is Technical Analysis Effective?
Observing the movement of forex charts and using chart patterns and recurring chart shapes in the market to make buying or selling decisions in the market and Stock Trading strategies is often considered an art. Technical analysis which is also called " chart analysis" or "chartist analysis" is an approach that assumes that financial markets and their prices are directly related to the psychology of the participants in the exchange (traders) more than to other factors. such as health economy for example.
How does
technical analysis work?
If you ask yourself the question
" how does technical analysis work? ", then we can answer
you that in its simplest form technical analysis is simply identifying the
trend of a market . The course of the financial markets usually forms
highs and lows, when drawing lines between these points strategies have
obtained trend lines, supports and resistances.
If we extend these lines slightly, we
obtain price levels on which prices are likely to rebound in the
future. The conclusion of all this is that by practicing technical
analysis, by tracing on the graphs of the financial markets, it is possible to
identify the key points where one will have to buy or sell the market.
Are the graphs
easy to interpret?
Often they are. However, effective
technical analysis often involves spending several hours studying the charts
and trying to find if certain things matter and are likely to influence the
trending movement of the market, such as the crossing of a round price
level .
You should know that the study of
Japanese candlesticks makes it easier to interpret the graphs, for example we
will easily spot on the graphs recurring figures such
as hammers , hanged or heads and shoulders. By
spotting these kinds of shapes we will be able to determine if a continuation
of the trend is likely or rather if a trend reversal is about to occur.
Are there
other tools to use?
In addition to the course represented
graphically, the majority of private traders have the habit of
grafting technical indicators to it . By doing so, they obtain
more information relating to the traded market as well as alerts and signals to
buy and sell which tell them when to take action, which confirm or invalidate
their investment decisions. In addition to these technical tools widely
discussed on online trading forums, intermediate and experienced traders
generally like to pair fundamental analysis with technical
analysis.
The perfectly studied technical analysis
can be mastered and bear fruit, however it is not complete. In order to
better analyze the financial markets and take advantage of them, experienced
traders generally combine technical analysis with fundamental
analysis. Although the differences between technical analysis and
fundamental analysis exist, it is important to note that this second
approach brings elements ignored by technical analysis and takes into account
the announcements of the economic calendar . Indeed, the
limits of technical analysissometimes pose problems and that is why it is
advised in trading manuals to use the two major forms of analysis in order to
best exploit the Forex market.
When you start in the stock market and in
technical analysis, you try to know where you are stepping thanks to
indicators. At the same time, one wonders which are really interesting to
use, which give the best results and especially if there is an indicator which
dominates them all? MACD, Stochastic, RSI, ADX, we balance volume…hop,
hop, hop.
Before you start making a gas plant,
and wasting your time analyzing which indicator gives the best signals, tell
yourself that no indicator will be reliable in telling you the best time to buy
and the best time to sell. . There is no such thing. In the end, on
the stock market, all that matters are the prices!
Yes, I consider it much more important to
learn how to invest according to prices rather than according to
indicators. I don't see indicators as a way to predict but rather as a way
to confirm. Only the evolution of prices, gives me buy and sell
signals. The indicators allow me to confirm.
So put aside all those exotic indicators,
and concentrate on studying the price chart.
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