Technical analysis is a chart-based technique to study of market trends and is based on the following principles:
- Market prices rise or fall in accordance to the demand and supply changes in market
- Price move in trends that will probably go on, rather than to reverse
- Market performance reveals strong connection to Human psychology
Timing is extremely critical in margin trading, especially when on significant leverage and only technical analysis provides tools to discern entry and exit points.
Fundamental and Technical Analysis
Fundamental analysis studies the pre-movement market, while technical analysis is dealing in the post-movement market patterns. Charts and fundamentals often disagree with each other. Fundamentals often provide clarification of essential market movements only when it’s already quite late for the trader to take actions. This is because of the market price, which is itself a primary indicator of the fundamentals which leads the rest. In contrast to fundamentalists, increased assurance, supported by positive experience, let technicians not wait for the additional authentication to arrive, but enjoy a chance of entering the trend at the very beginning. Furthermore, fundamental analysis alone does not include a study of price action.
Trading Analysis: Market Timing
The decision making process holds two procedures – analysis and timing. Timing is quite essential in margin trading, particularly when on significant leverage. Unlike analysis, when both fundamental and technical approaches can be applied when checking whether the market is under or overvalued, entry and exit points can separately be distinguished by analyzing charts.
Technical Analysis: Market Flexibility
One of the main advantages the chartist has over the fundamentalist is its flexibility that allows switching onto nearly any area or market staging strong tendencies. Forex technical analysis ideology is appropriate to different trading mediums. In contrast to specialized fundamentalists, technicians unlike can trade as successfully in either stock of futures.
Technical analysis also considers an extremely effective tool when working with bigger timeframes than it is traditionally but wrongly thought to be limited to.
Generally, futures markets predict changes in economy and inflation. Rising product prices usually imply growing economy coupled with inflationary pressure, whereas falling product prices hint at opposite, by slowing economy and decreasing inflation. The same way take actions gold, oil. Yet foreign currency futures are able to give an idea of how do the economy of their house feel like. It is particularly significant that trends in futures markets develop long before they are reflected in usual monthly or quarterly economic indicators.