Learning The Secrets Of Successful Trading

Stock or forex trading is not an easy game for anyone. People who are successful in the profession spend hours poring over various details to correctly forecast the movement of the stocks. There are too many factors that influence the price of stocks or forex. There are internal economic policies of the country which affect the trade. The financial results of the particular company whose stock you are trading in will matter a lot. Technical analysis is the study of the movement of share prices to forecast the future movement and arrive at a trading decision. 

Understanding Technical Analysis And Its Use

Technical analysis is done to plan investment into stocks and forex after studying their movements and market trends. Technical analysis doesn't take into consideration the intrinsic strength of the stock. It only takes into consideration the market price movements, trading trends, and other market factors to plan future investment. Technical analysis can be done for the movement of stocks, futures, commodities or forex as long as there is historical data available.

These analysts believe that the past activities of the stock can be used to evaluate the future price movement of the stock. The price changes of security are also studied in technical analysis. It differs from fundamental analysis. Fundamental analysis considers the financial strengths and weaknesses to predict the future price of a stock. The market trends are not taken into consideration in fundamental analysis. 

The Main Considerations For Technical Analysis

Technical analysis is considered dependable based on certain assumptions. Critics of this method point out that the intrinsic strength of the stock is not taken into consideration. But supporters of technical analysis argue that the existing price has been arrived at after considering all the facts. The market is aware of the company and its financial strength and thus these are worked into the price already. This means that the only thing that needs to be taken into account is the demand for the stock in the market.

Another assumption on which technical analysis is based is that there are trends in the movement of a stock price. This can be short-term, medium-term or long-term. According to the technical analysts, the movement of price is never without any basis. They follow past trends. These analysts also believe that the sentiments of the public are predictable. Stock movements are based on these sentiments and hence the trends will continue to repeat depending on the sentiments of the public. 

The Use Of Technical Analysis In Trading

Technical analysis is used to forecast the price movement of a stock. As the price is dependent on the supply and demand of a stock, there can be a trend to the movement of all stocks. Other than the prices of the stocks, analysts also consider the volume of stocks that are being traded during a period. They also consider the variation in prices to chart the future course of the stock. Technical analysts look for patterns in the movement of the price.

Patterns are formed when the price movements are charted on a graph. The way the graph is drawn is then looked into to see if there are any repetitive patterns. These patterns are named after the shape they form on the graph. These patterns are then analyzed. Experts have analyzed many such patterns and concluded how the prices will move after certain patterns.

The bull flag is one such pattern that is used to decide on future trade. The pattern is called so because it represents a pole and a flat on top of it. It is called a bull flat because it occurs on a bullish trend. The pole represents the rise in price. The flag on top of it represents the consolidation of the price.