Technical Analysis is the study of historical price data in order to forecast or profit from future price movements. As the markets are driven by supply and demand, fear and greed, we can look at price collectively as the ongoing argument between market participants’ opinion of future price. Taking this view that market prices contain all opinions of future price, a Technical Analyst assumes that price discounts everything, therefore all the analyst needs to read is the price chart itself.
Technical Analysis allows a trader to:
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- Identify trends
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- Anticipate a change in trend
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- Confirm a change in trend (reversal)
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- Time a trade entry
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- Determine a trade exit
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Know when the analysis is incorrect
If your objective is to make money then we must spot a trend early enough to enter before it ends, but at the same time as safely as possible. This sounds easier than it actually is.
A trader is faced with two options: When to enter a trade; when to exit a trade. When exiting, the trader must make a decision as to when they will exit in both profit and loss.
