A Technical Analysis topic is presented simply and concisely for beginners. ___
Prompt: New traders should take some time and carefully read the post entitled 'You can't beat the market' that is located in my profile.
Disclaimer The author of this text is not an investment advisor. The preceding content is intended to be used for informational and educational purposes only. It is not an advice or inducement for the purchase or sale of the products mentioned. Before making any investment based on your own personal circumstances, it is very important to do your own research and analysis and also take independent financial advice from a professional to verify any information provided here.
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A Technical Analysis topic presented simply and concisely for beginners
TECHNICAL AND FUNDAMENTAL ANALYSIS
There are two methods of a market analysis in order to predict the future trend of its price. These are the Technical and the Fundamental Analysis methods. The common goal of both methods is to help the investor to determine probable future trends in prices so as to choose the right market and the right time to invest in it.
Technical Analysis is the method of analysis that illustrates and studies a market's action in the past using charts, technical indicators and standard repeating patterns, for the purpose of forecasting price trends in the future.
Technical Analysis can practically be applied to every market that is in stocks, commodities, bonds, futures etc.
The term 'action' mainly refers to price and volume but can include more sources of information if available (number of transactions, pieces per transaction, buy/sell volume, open interest for futures etc.).
It is very important to emphasize here that the Technical Analysis can forecast only the price trend of a market and not its exact move.
Fundamental Analysis is the method which, in order to predict the future course of a stock, carries out a statistical and econometric analysis to project the future of the macroeconomic aggregates affecting it (for example inflation, interest rates, unemployment, etc.). It also analyses and calculates all accounting figures and economic indicators of a stock in order to estimate its intrinsic value.
The Fundamental Analysis examines the cause that makes the market move whilst the Technical Analysis examines the effect of the cause.
Although the Technical and the Fundamental Analysis methods are not rival but complementary, many Technical Analysts are of the opinion that they do not need the Fundamental Analysis because it is enough for them to study the effect and they do not care about the reasons that cause it, whilst others, like me, feel safer to use Fundamental Analysis' results to include in their stock watch lists only stocks with excellent fundamentals.
Here must be stressed that in the beginning of major trend reversals of the market the two methods disagree. This happens because whilst the Technical Analysis catches the trend reversals while they happen, the known to the general public results of Fundamental Analysis do not support these trend reversals.
Generally the market's price has already discounted all the known fundamentals and now discounts the unknown ones.
From the above analysis emerges the conclusion that the great advantage of the Technical Analysis is that it incorporates all the internal information of "smart money" and the unknown fundamentals of the market.