Technical analysis is an outlook which see’s traders thinking of the market as a series of numbers and statistical data. The assumption behind technical analysis that it is possible to predict movements in price in the marketplace based purely on how it has performed in the past. Technical analysis is particularly popular in those who trade derivatives as it often takes a much more short term approach than fundamental analysis.
Of the various types of approaches to technical analysis by far the most popular approach is charting. Which unsurprisingly uses charts as tool to help the trader get a picture of how stock, commodity or indexes prices have moved over time. Working out the overall trends behind the movements in price can help a trader develop a trading strategy for that particularly stock, index etc. Often those who use technical analysis also believe that movements in price can be only sustained by high trading volumes. This is why technical analysts look at both price movements and volumes traded to determine what trading strategy to take.
Strategy’s vary among those who use technical analysis. One example is the charts that different traders look at with some traders using 5min charts and others taking a longer term view and using charts which look at longer term trends. In future posts we will look at few different charting techniques that are used by those who endorse technical analysis.
Part of the Beginners Guide to Strategy and Analysis for Spread Betting