Investors have had a long-standing debate over technical analysis versus fundamental analysis. But, the fact is that technical analysis has proven to be immensely beneficial where short-term trading or day trading is concerned. What exactly is technical analysis? Put simply, it refers to the study of price charts, along with any information that can be obtained from them, such as cycles, volume analysis, statistics and trends. Technical analysis can come in handy for forecasting price movements and are also used for providing methods for exiting or entering a trade.
If you are wondering whether technical analysis should be used or not, here are some great reasons for traders to using it:
- Get all current information
The current price of an asset reflects all the current information that’s available. The market is always full of rumors about the price surging or plummeting, but the current price balances out all the information. As traders and investors move from one category to another i.e. buyers and sellers, the asset will also move and this will show the perception of its value. Price charts can tell you when there is more selling interest in an asset than buying interest and vice versa. Hence, technical analysis that involves the price chart can undoubtedly make trading easier because it enables you to obtain all the latest information about an asset.
- Trends in price movements
Making money would be immensely difficult if there were random price movements. While some random movements do happen from time to time, overall price movements typically have trends. The price has a directional bias that can give traders an advantage during trading. When you learn more about technical analysis, you will discover that it is more about when a trend is in place known as sideways market, when it isn’t known as range or correction and when there is a trend reversal.
Trend following strategies are some of the most profitable ones for trading. Traders have to isolate the trend and then find opportunities to enter the market to capitalize on its movements. These trends can help traders in making money, whether they are trading in the short-term or the long-term. Hence, you can have the tools for doing so, thanks to technical analysis.
- Timing
One of the biggest benefits of technical analysis is that it offers you ways to ‘time’ your trades. Yes, the fundamental approach can provide you with some interesting news regarding an asset that may give it a boost in the future, but when will it happen? This is where technical analysis comes in because it will tell you the right price when you should make an investment. This analysis tells you when the price will drop or rise, letting you time your trades accordingly.
- Any market or time frame
Another excellent reason to use technical analysis is the fact that it is quite a large field. Thus, a lot of the concepts can be applied to multiple markets, which include forex, futures, binary options, stocks, CFDs, art prices and home prices and now cryptocurrencies as well. All forms of trading are based on human behavior patterns and these patterns are reflected in the price charts across the markets. This means that it is not necessary for a trader to learn how to analyze every single market. While there might be small differences between analyzing the highly leveraged forex market and the volatile crypto market, most of the technical analysis knowledge will be helpful in all market. Moreover, it is also possible to use technical analysis on any time frame, whether you are trading monthly, daily or weekly charts.
