Secrets Of Technical Analysis In The Stock Market Trading
There are many techniques in forecasting trends these days for stock trading; one that has been around for a number of years is technical analysis. This works by analyzing certain trends; including time period and volume, though mainly focuses on pricing in reference to these. A very complex process in many respects, it tends to center around charts, graphs and dot references.
For many, technical analysis lacks any real theory that underpins it, and is subsequently without credence. However, others argue that its results are justification enough, and point to its correlation to behavioral finance.
However, countering this view are those that question why it has not led to a robust automatic trading system, however, this would of course negate the human analytical mind so often falls flat as an argument.
A lack of evidence that technical analysis was the sole reason for successful strategy trading has also been held up for discussion in the camp against its merits. However, chartists argue that back testing evidence has been delivered; simply that it is not understood by the detractors.
In essence though, the arguments for the technique are sound. Anything in life can be analyzed, and lessons learned; history to name but one of course! However, the issue seems to be in the selecting of trends to study, and in the application of strategies taken from them; but market trends do appear; it is just a question of spotting them at the right time.
Technical analysis does not tell you when a stock is cheap or expensive, but it can solve the problem of timing, which determines whether or not your investments will make you money or not. One of the biggest investment myths is that if you buy and hold you'll get rich. It allows you to factor in investor psychology and market timing when you make an investment decision. Fundamental analysis may help you value a stock, but it doesn't tell you how others will value it in the future nor can it tell you when to buy or sell it. If investors have learned anything over the past decade it is that the psychology of price is a variable that cannot be ignored.
Advocates of the system, and objectors to it, do seem to come together in some sort of agreement however. Whilst both have very differing views, both state that technical analysis should be used not as standalone technique, but more just one of several weapons to understand fluctuations in the market and apply strategy effectively.
About the Author
For more on using stock charts grab our free technical analysis guide http://www.wallstreetwindow.com/content/technical-analysis.
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