Technical Analysis – Benefits and Mistakes That Every Trader Should Know About In the financial market, the higher the risks involved in a certain investment, the higher the potential for financial gain. As such many investors would often use several techniques or strategies to ensure that the rate of potential return is higher than the potential for loss. One of the techniques that seasoned traders would use is technical analysis together with other financial tools. Technical analysis is a method where a trader uses charts and other mathematical systems to predict the future price of a certain asset or stock, more specifically in the currency trading market. The technique uses several indicators as guide for traders to see the past, present and the future prices of certain currency pairs. The plotting would also reveal a trend line or a pattern, which traders can use to predict the movements of these stocks. Benefits of Technical Analysis: -
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Focus on the Price Movement – Unlike fundamental analysis where traders use- market reports, traders who use technical analysis focus on the movement of the stock or asset’s price. This helps make the market clearer especially when taking into consideration the key indicators. Patterns – Although the market seems to be so tough and irregular that this discourages beginners, technical analysis provides a pattern or trend, which can help novice traders with their investment. Affordable and relevant – Technical analysis is also beneficial for beginners as it is affordable and some brokers offer the indicators free of charge or for a minimal fee. The indicators provide a wealth of information in just a few minutes or seconds helping one to make investment decisions faster. This is important as most trading success happens quickly.
How Technical Analysis Can Fail Although technical analysis can be a powerful tool for traders, there are some things however, that can result to its failure. One of the best examples where a technical analysis can fail is during the occurrence of natural disasters as these types of eventsare unpredictable. In most cases, natural disasters can affect the supply and demand of commodities thus affecting the price and currency of the affected country. Another event that makes technical analysis unfavourable is during political upheavals whether national or international event. Geopolitical events can cause the currency to spiral downwards or upwards depending on the extent and implications of such news.