Technical analysis is a market analysis approach for predicting the direction of prices through the study of past market data, primarily price and volume. By using these statics, smart traders can make buying and selling decision to pull profit from market.
But traders always keep in mind that “technical analysis deals in probabilities and not in certainties”.
At start, technical analysis was used principally in stock market, but with its popularity and success its scope gradually extended to commodity, currency and bond markets.
Technical analysis made easy life for short term, intraday traders as well as for scalpers.
With hi-tech computer system, almost live data feed and automated trading system based on technical analysis increased choices as well as profitable trade frequencies for traders.
For long term investors, fundamental analysis and data ratio are everything but day traders or short term traders cannot rely on them as for them “timing is everything”
And they have only one choice that is follow technical analysis methodology.
Success of technical analysis lies in taking positions in security different than crowd expectation. As stated above, it will easy to take buying and selling decision. With strong patience, focus and discipline, traders can buy security in depressed environment and sell them when everybody is in state of euphoria. This strategy applied to day traders as well as long term investors.
Intraday panic drop can be opportunity to buy for intraday traders. For investors bear market bottom is buy and accumulate opportunity. And for both overjoyed tops are profit booking probabilities.
Technical analysis science will help you to understand peaks and troughs or in simple words tops and bottoms in market.
Technical analysis approach to investment is essentially a consideration of the idea that prices move in trends that are defined by changing approaches of investors towards variety of economic, monetary, political and psychological influences.
Technical analysis is an art as well as science for traders. The art is to identify a trend reversal at early stage and ride on it until it get reversed again to make money out of the market. While science is to do it with the help of price, volume and scientifically derived indicators.
Peoples always do same mistakes again and again, that why analysis historic data with help of price patterns and indicators, traders can make future predictions and decisions.
Market is complex reflection of human nature and their actions. With the help of technical analysis, technicians can find exact juncture points for proper entry and exits.
By using technical analysis, you can feel difference in your trading success and which will goes increasing with time experience.