Technical Analysis for Beginners- An Introduction
What is this complex term technical analysis? To make it simple, technical analysis means to predict the future price of an asset through studying its charts and other financials, in order to make money.
Technical Analysis = Predict Future Price of an Asset to Make Money.
The majority of the traders study the Heikinashi Candlestick Charts to predict the future prices of an asset.
The movement of price in the chart is termed as market action. So a trader studies the market action to analyze the charts.
The 3 Major Arguments of Technical Analysis
a) Market Discounts Everything- Anything that can possibly affect the price fundamentally, socially, politically, etc. is already reflected in the price. The price action in the charts reflects the change in demand and supply of the asset. The shift in demand and supply is caused by the above-mentioned factors. Therefore, it is said that price action already includes the relevant elements that are capable of affecting it.
b) Price Moves in a Trend- There are 3 major trends in the financial markets. The price can either move in an uptrend making higher highs and higher lows, or the price can be in a downtrend creating lower highs and lower lows. The whole purpose of the charts is to identify the trends in their early stages. Also, it is believed that the prices tend to stay in the trend unless a reversal is confirmed.
c) History Repeats Itself- There are many chart patterns and fractals that work in a particular way most of the time. This happens because human psychology does not change with time. We, humans, are expected to behave in a particular situation the same way over and over again. Therefore, the chart patterns are expected to play out in a certain way over and over again.
Fundamental Analysis Vs Technical Analysis
To make it easy, Technical Analysis focuses on the study of the price action/market action. On the other hand, fundamental analysis focuses on the study of the cause of the price movement. Fundamental analysis will tell you what asset to trade in and technical analysis will tell you when to trade.
Criticism of Technical Analysis
Many people have questioned the idea that the past can help t predict future trends. They say that charts can only tell you about the past and not the future. Also, technical analysis is subjective in nature. Someone’s analysis of the same chart can be different from someone else’s analysis.
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