The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.
The main evidence for using technical analysis is that, theoretically, all current market information is reflected in price. If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Now, have you ever heard the old adage, "History tends to repeat itself"?
Well, that's basically what technical analysis is all about! If a price level held as a key support or resistance in the past, traders will keep an eye out for it and base their trades around that historical price level.
Technical analysts look for similar patterns that have formed in the past, and will form trade ideas believing that price will act the same way that it did before.
In the world of trading, when someone says technical analysis, the first thing that comes to mind is a chart. Technical analysts use charts because they are the easiest way to visualize historical data!
You can look at past data to help you spot trends and patterns which could help you find some great trading opportunities.
What's more is that with all the traders who rely on technical analysis out there, these price patterns and indicator signals tend to become self-fulfilling.
As more and more traders look for certain price levels and chart patterns, the more likely that these patterns will manifest themselves in the markets.
You should know though that technical analysis is VERY subjective.
Just because Ralph and Joseph are looking at the exact same chart setup or indicators doesn't mean that they will come up with the same idea of where price may be headed.
The important thing is that you understand the concepts under technical analysis so you won't get nosebleeds whenever somebody starts talking about Fibonacci, Bollinger bands, or pivot points.
Now we know you're thinking to yourself, "Geez, these guys are smart. They use crazy words like 'Fibonacci' and 'Bollinger'. I can never learn this stuff!"
Don't worry yourself too much. After you're done with the School of Pipsology, you too will be just as... uhmmm... "smart" as us.
By the way, do you feel that green pill kicking in yet? Bark like a dog!
So how far back into the history analysis do you reckon we look? it seems so complicated with the daily fluctuations
ReplyDeleteInteresting. Sounds like a very analytical topic. I am taken Econ next year so hopefully I get some insight into this field.
ReplyDeleteThanks for the post. Keep up the good work and check out my blog -- I will reward your kindne$$ =)
So, it's basically like betting against the trend?
ReplyDeleteGreat guide to something that I know absolutely nothing about. Thanks!
ReplyDeleteIt's probably because so many are watching these tops that they behave that way. Everyone is waiting for it to reach the highest limit, sell like crazy, the shit drops, they buy, and it happens again.
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