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Introduction to Technical Analysis - Technical Analysis Course


Currently, most successful traders hugely depend on technical analysis to make rational trading decisions and generate profit. Using technical analysis, they are able to analyze the trends in the market; therefore, they make better decisions.


The Technical analysis, in general, refers to an approach of predicting and examining the movement of the prices in the financial markets by the use of the historical or previous market statistics and price charts.


According to the technical analysis, if a trader can study the history of the market patterns or prices, the trader can make a more reasonably accurate prediction of future prices and trajectories through the knowledge gained.

This article discusses the technical analysis as the financial market tool to predict future prices. It has also described the pros and cons of the technical analysis and the assumptions that are used in the technical analysis.


The Popular Tools of the Technical Analysis


There exist a wide range of technical analysis tools that you can use to find the best trends and patterns given specific charts during trading. Some of these tools include Bollinger bands, resistance levels, support and moving averages.

All of the technical analysis tools are easy to use, and every trader can use them. All these trading tools have a similar purpose, which is to make you understand the charts' movements and help you identify the trends that will be easier for you during trading.

The fundamental analysis is somehow different from the technical analysis, where the fundamental analysis focuses on the actual value of the assets with the meaning of the intrinsic value and the external factors are also considered.

The technical analysis will be purely based on the price charts of a given specific asset. It solely identifies the patterns of a specific chart and using the technical analysis, and you can make the future predictions of the future movements.


The Pros and cons of Technical Analysis


Pros

If you use the technical analysis, you are able to identify the trends in the market in terms of the market prices. Being able to identify market prices is one of the essential strategies in trading. All traders need to figure out the best approach they can use to identify and locate the market's best exit and entry points. This is one of the best approaches and helps the traders to do so.


The technical analysis tools are popular, and they are commonly used, and many of the traders believe that it allows them to create their own trading rules and strategies. Since the numbers of the traders using similar indicators are likely to increase day by day as they look for support and resistance levels, more sellers and buyers will be congregated around the similar price points. The patterns will repeatedly be inevitable.


Cons

One of the significant characteristics of the trading markets is that they are very unpredictable. Being unpredictable means that it will be very hard for traders to explain what will happen in the future. You are not aware of the next move in in the market or in the marketing trends.

The unpredictable market behaviour means that there is no specific form of analysis that guarantees 100% accuracy. Even if the historical price or patterns provides an insight or gives the prices likely trajectory, it lacks 100 per cent guarantee that it will be successful. Any prediction can either be successful or fail.


Suppose you are a trader and you would like to obtain better results or predictions. In that case, you should use a range of the Trade indicators and analysis tools to achieve the highest level of assurance that is possible to occur. You also need to have adequate risk management strategists to be able to protect yourself from the adverse results or movements in the market.


The Assumptions used in the Technical Analysis


To give future predictions of what will happen in the financial market, prices need to be based on some factors. You will need to believe that some factors will have to remain the way they are, or they will change in a specific approach, so the outcomes of your analysis will happen.


The Price trends' movement - the traders assume that the market prices even in the random markets will remain to exhibit the similar trends respectful of the time objective they are being observed. This means that the traders assume that the stock markets will continue in the historical trend and they will not change.


The assumptions of the previous trends- the technical analysis assumes that the financial markets' previous trends will repeat themselves. This assumption has been derived from the repetitive nature of the financial markets. They make it to look predictable depending on your emotions, such as excitement and fear.

Using the previous trends, you can make the prediction of what will happen in the future markets. This assumption has been used for many years, and many traders believe that it is very fruitful because you can be able to understand the patterns of the movement.


The Assumptions based on the market discounts- using the technical analysis, you need to believe that everything that belongs to Forex company, including the discounts, is included in the stock price. This is to ensure that the price of the stock is uniform.

This assumption is developed from market psychology and the Efficient Market Hypothesis, which has a similar conclusion concerning the prices. The only thing remaining includes the analysis of the movement of the prices, which is viewed as the product of the demand and supply of the specific stock in the market.


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Conclusion


The technical analysis attempts to predict the future movement of the financial market prices and any other tradable instrument that is usually subjective to the demand and supply forces, including the currency pairs, bonds and stocks.

Most of the traders believe that the technical analysis is just the study of the demand and supply forces just as they are reflected in the movement of the security prices. The technical analysis uses several of the assumptions in order to be able to predict the future movement of financial product prices.


Various researchers have developed various patterns and signals in the Financial trading industry to support technical analysis. Various tools have also been developed to allow the trader to perform technical analysis and make informed decisions.


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