The involvement of Technical Analysis in the world of Trading

Technical analysis is the fore casting of future financial price actions on the basis of the study of past price movements. It does not give an absolute prediction of the future. Technical analysis use different variety of charts based on the price movements. The technical analysis is applicable to any tradable instrument; the price is influenced by the supply and demand forces. The technical analysis shows the varying price value and the market fluctuations in different time frame. So that we could understand the trend of the market and can follow that to attain a good profit.

Technical analysis beauty lies in its effectiveness. Because technical analysis principles are universally accepted, using the same tentative background each of the above analysis steps can be performed. Unlike fundamental analysis technical analysis focuses on short periods may be only few seconds or one month. It is well-matched to those who try to make money by buying and selling securities repeatedly but not suited for long term investors. Technical analysis spot the price headed direction, overlooking individual fluctuations. Technical analysis shows the concept of support and resistant levels.  These are not fixed levels, but they fluctuate. Channel lines can be seen on a chart, among them the bottom line indicate the support level (security floor price), and the top line indicate the resistance level (security ceiling price). You can use support and resistance levels to confirm whether the trend is exist or not and can also be used to identify the trend reversal.

By paying attention to volume trades you can identify the validity of trend. When you follow the technical analysis careful about the volume that means how many buy and sell takes place at a particular time.  A series of calculated averages measured over consecutive, equal periods of time is the moving average. So by using moving averages you can sift out small price variation and it will make your overall trade easier. There are oscillators and indicators to support what the price movement are telling you. Some of the technical analysts use a single indicator or oscillator which guides them to buy or sell; these indicators are used as two or more combination or in conjunction with price movements and chart patterns. Everything has advantages and disadvantages like that technical analysis also have some limitations it won’t work always. For example, the most perfect trend reversal pattern may be formed (thought to be an extremely bullish technical indicator, and you buy the stock, only to see a huge extended rally from it, but trend reversal may leaving you behind). Do not completely depend on technical analysis. Combine it with fundamental analysis just use it as a guide.

Fundamental analysis takes a long term approach to analyze the market. It takes years of time .While technical analysis take a short term to analyze market. It takes only few days or weeks. Technical analysis has some advantages like this to make profit when you use it in a proper way. That means you should understand the technical analysis clearly.

Some good reads