around "predictions". Every trader or investor would like to have an
inkling of the outcome (technical analysis) for a particular security
or stock, before parting with his/her hard-earned money!
In fact, seasoned veterans are able to correctly predict the ups and
downs of financial securities. That is how they make oodles of money!
But this "predicting ability" is absent in most people. Even experts
can go wrong at times, forget novices to this community! Therefore, a
new tool called "technical analysis" has come into the market to help
out in such matters. Since the results of using it have proved
favorable, more and more traders and investors are going in for it.
Let us examine all the characteristics of this new tool--
(1) The correct definition of technical analysis is "the skill of
being able to predict a particular security in the financial market".
(2) This type of analysis revolves around the actual movement of the
market; this is not the case with fundamental analysis. Factors
related to politics or economics are pushed aside, though they do have
an impact on a market's movement.
(3) It searches for patterns or trends that can recur in the future.
When this knowledge becomes available, prediction of what will happen
in the future becomes easy.
(4) Despite this analysis being quite reliable, it is advisable to go
in for fundamental analysis also. A comparison between the results of
both will give a double edge to accuracy.
(5) How is fundamental analysis different?
If a fundamental analysis is to be done about a particular company, it
includes factors like--how money is being managed by the company, how
its performance has been in the past and how stable the current
government is regarding trading currency. Thus, this analysis probes
the reasons for the market's movement.
Technical analysis is only bothered with how the market is actually
going to move. The company's present or past performance, how it takes
care of its money--all these are irrelevant!
(6) Anything that claims to be perfect, is naturally viewed with
skepticism! So also this new tool, and its claims to being efficient
and accurate! People wonder how past movements of the market can aid
in predicting the future?
(7) Technical analysis will have to take the help of quite a few
indicators for predicting the future of financial securities, such as--
volatility indicators, price change indicators, strength indicators,
and so on.
(8) Just indicators are not enough, some type of software is also
necessary for the purpose of monitoring the results. The software
should have these features--real time data streaming, zoom features to
be able to view the changes clearly and charts to base predictions on,
among others.
(9) There is plenty of software available in the market, but it is
advisable to choose one that studies how a particular security has
performed in the past and predicts its future accurately.
(10) How are market patterns detected?
Each day, the opening price for a particular security, its highest
price for the day, the lowest price for the day, and its closing price
at the end of the day--have to be taken into consideration. Daily data
collection leads to the setting of a pattern for the future.
(11) The most important thing to remember is tha no technical analysis
can be 100% successful in its predictions, despite the best software
in place. This type of tool is only meant to serve the purpose of a
guide.
(12) Finally, whatever be the software, whatever be the technical
analysis, the ultimate decision-maker is "the person"! Yes, this tool
with its software gives very good guidelines, but instinct or a sixth
sense should play a greater role if the trader or investor wants to
achieve great success!
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