Technical analysis is not an exact science; it is more of an art and
takes a considerable amount of experience. Not all studies work the same
for every instrument traded. One study may give excellent buy and sell
signals while another may not work for you at all. It's up to each
individual trader to find those that will fit his or her specific needs.
The professional investor that looks at the same stocks and only buys
when there is a SALE going on. So when everyone has given up and sold, he is buying. After
a month or two the stock generally rebounds and Wall Street loves the
stock again, then analysts hop on board and upgrade the stock to a
strong buy, raising estimates and new fools come in and buy the stock at
the all time high. The professional investor then dumps his stock and
looks to find the next stock that is still at a bargain price.
Every technical analyst knows the importance of charts and indicators.
But if these were all it took to make profitable trading decisions,
everyone would be a winner. With most indicators it is possible to
detect buy and sell levels, but the sport is to detect them before
Technical analysts identify price trends in stock markets and attempt to
predict patterns. Technicians use various methods, tools and indicators,
price and volume charts. Many technical analysts also follow investor
psychology (stock market sentiment indicators).
Technicians tempt to forecast price future trend in order to build
trading system where gains from successful trades exceed losing trades,
delivering positive profit in the long run.
There are several popular schools of
technical analysis. For example:
Dow Theory, candlestick charting, and Elliott wave theory. However,
majority of the traders use a combination of schools. Technical analysts
study to decide which particular instrument reflects current and
possible future trend.
Technical analysis is frequently compared to fundamental analysts; the
fundamental analysis is the study of economic factors that can influence
stock and markets trends. Some traders use technical or fundamental
analysis exclusively, while others use both types to make trading
"The trend is your friend" is the motto of technical analysis.
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