Monday, 1 October 2018

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Importance of Technical Analysis:

Technical analysis is increasing popularity worldwide. Here are some of the reasons why it is so important to the analysis of financial markets: 

MATHEMATICAL APPROACH:

Technical analysts use probability to pick stocks. By using probability, they are able to predict the outcome of an action without necessarily needing to scrutinize it. So, technical analysis predicts that how prices are going to move without requiring bothering that will cause the price to move. It is much quicker and less difficult than fundamental analysis.

SIGNS OF UPCOMING RISK:

Sometimes, a main fall in stock prices is just around the corner but nobody can see it coming. Fundamental analysis tools are unable to predict it. However, by using historical chart patterns and other technical tools, one can predict the fall. Now generally, technical analysis cannot predict the reason for the fall, but it can predict that it is about to come. However, technical analysts predicted beforehand that markets are about to enter one of the biggest falls ever.

IDENTIFICATION OF SHORT-TERM TRENDS:

Fundamental analysis is more relevant for investors who want to invest for a long period of say three to five years or more. This is because any profitable business model takes time to be successful. This is not so with technical analysis. Eventually, the success of a stock depends on the company’s profitability. This cannot be predicted by technical analysis. It can only predict whether the stock is going to move up or down in the near future. In the short term, however, fundamental factors can only have a small effect on prices. In such cases, technical analysis presents a clearer identification.


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