What's Technical Analysis?
Technical analysis is the study of stock trading price charts to learn how to predict stock trading price movements in the stock market.
Technical analysis uses the historical stock trading price chart data to predict the next likely movement of the stock trading price trend.
Technical analysis also include the use of various stock trading price patterns that can be identified on charts by stock traders. These stock trading price patterns are identified as commonly repeating stock trading price patterns that can be used by stock traders to predict the next likely market movements based on the technical analysis of these commonly repeating chart stock trading price setups.
Traders then create various strategies that incorporate these technical analysis techniques in their plan and then use these strategies to generate stock signals & detect when to buy a indices, when to open a sell trade and also when to close a trade.
Analysis is Based on Three Factors Common in the Trading Market:
1. Stock Price Moves in Trends
Indices Price movements follow trends. This means that after a trend has been established, future market stock trading price movement is more likely to be in same direction as the trend than to be against it. Most strategies are based on this technical analysis concept.
2. Price Discounts Everything
Technical analysis only factors stock trading price movement & assumes that, at any given time, trading price reflects everything that has or could affect the stock trading price including a country's economy and even the fundamental factors. This only leaves the study of stock trading price, which is a product of the supply and demand for a particular indices instrument in the stock market.
3. History Tends to Repeat Itself
History repeats itself mainly in terms of stock price movement. Repetitive nature of stock market movements is attributed to trader psychology: in other terms, trade participants tend to provide a consistent reaction to the stock trading market most of the time. Technical analysis uses chart setups to analyze these chart stock price movements. Although these charts represent historical data they are still relevant because they illustrate stock trading price patterns that often repeat themselves.
Understanding this stock technical analysis in trade can be a valuable tool in determining the trend of any market & assisting with entry and exit levels for your stock trades.
The goal of these technical analysis strategies is to help traders determine when a market is trending, and when it isn't. If the price is moving in one particular direction, then we want to be on board. If it is not, all you're going to do is lose money as you will get whipsawed faked out around and this isn't what we want as traders.
Unfortunately, many traders fight the trend and buying/selling in the opposite direction of a this market trend direction, trying to pick a top or a bottom, only to see the stock trading market move further in direction of the trend.
Another common mistake traders oftenly make is adding onto a losing trade position, averaging a loss. This isn't a good trading strategy especially in a strongly trending market. It is something that experienced trader never do. The trend is your best friend, never go against it.
Technical analysis studies alert traders of setups and there are no certainties in financial market. Profits come from using proven strategies & methods to find a trending market and taking trades in same direction as that of the trend.
