Technical analysis is used to study the history of changes in quotations for any financial instrument. Based on this story, a forecast of future price changes is made. The basis of technical analysis is the study of price time intervals. Moreover, technical analysis covers trading volume information and also uses other statistics.
Technical analysis is widely used in the stock market. A main distinctive feature of this type of analysis is that it only takes into account the price movement in a certain direction, but it does not determine its causes. In general, technical analysis is based on three postulates:
· A price includes everything: The point means that in the price itself and in the volume of trades all information has already been taken into account, which has determined the current situation on the market. So, here the trader doesn’t need to go into details and study the reasons that caused these or other price fluctuations. The main task here is to predict changes in quotes in the future based on these fluctuations.
· The movement of prices is subject to trends: Accordingly, if the price moves in a certain direction, then with a high degree of probability it will continue its movement for some time. That is why most of the recommendations regarding stock trading state that you should not trade against the existing trend. However, if your trading strategy requires it, then at least it should be done with great caution.
· History repeats itself: This refers to the history of price fluctuations presented on the chart. The fact is that most traders react to certain market situations in a similar way. This is how human psychology works. In this regard, in technical analysis, one should discern a number of patterns. By noting the formation of a certain pattern, the trader can most likely forecast the direction of future price changes for the coming period. Proceed with viewing this EXANTE broker review to learn more about this.
When using both methods of analysis (technical and fundamental), one should take into account that the conclusions can be different from each other. The fundamental analysis is based on the value of the goods and the market price, underestimation or revaluation of shares and a bunch of other reasons for the change in price levels. As for technical analysis, it has to do with identifying patterns in the chart of quotes. Most successful stock speculators recommend using both types of analysis to succeed in stock trading.
How to become a successful investor
Who is a stock trader? This is a person who earns income by buying and selling financial instruments in the financial markets. Financial instruments are understood as stocks, currency, futures, options, commodities, etc. Everybody naturally wants to become a successful trader. If you are also willing to find out how to derive the maximum benefits from working with the EXANTE broker, view these tips below.
· Every trader can lose: Be ready to place a stop-loss order. By the way, according to statistics, the vast majority of traders are men. After all, it’s more difficult for them to admit a loss, which means being defeated. Having made a decision, men often go to the end, even if they realize that they have chosen the wrong path. Unfortunately, such a common personal quality often harms stock trading.
· Do not forget about such an important thing as probability: Before opening a trading position, conduct technical analysis that will help you identify the entry point and timely leave the market, reducing the risk of losses. However, never take for granted that the price will go exactly as you suggested. The market likes to come up with surprises. So, you shouldn’t consider your forecasts absolutely true. They just have to do with probability.
· Before you enter the market you need to study everything, conduct technical (and possibly fundamental) analysis, and spend enough time working out details. Be careful and persistent and do not rush to make a lot of transactions.
· Try not to start speculating in the market when you feel bad. It’s especially true for novice traders. One can’t clearly formulate the mechanisms of psychosomatic correlations that occur with the trader during his activity on the stock exchange. Nevertheless, experienced traders know that emotions can ruin even the most promising trading strategy. That’s why you should approach stock trading with a cold mind. Traders capable of taming their own emotions are the most successful in the stock market.
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