Technical Analysis – The Bloodline of Trading
In every aspect of life, something pumps life into it without which it would cease to exist. For example, just as medical advancements and medicines are essential in the medical field, so is a sound technical analysis for a profitable trading.
Technical analysis is an efficient tool that is employed in the field of trading to analyze securities and discover profitable trading opportunities. Technical analysis involves statistical analysis to gather useful data from the past trading activity. Results of an efficient technical analysis include the volume of trade and price movements. Continue reading to know how important technical analysis is to trading.
Characteristics of Technical Analysis
- Initially, technical analysis was limited to mere reading between the lines and interpreting volumes of data that flow in successively. It also involved a lot of deductions from the data and the large magnitude of price by a mere use of a stock ticker. This was not only strenuous but time-consuming with accuracy not that great.
- Later, this manual daunting task was slowly replaced by the introduction of computers in the early 1970s. After which data compilation took a complete 360-degree turn, which made lives much simpler. Data were compiled into easily readable charts, which could be used for reference by any investor.
- Once progress was initiated, things got a lot simpler. For instance, the technical analysis took the form of bar charts, different chart patterns, and even the candlestick pattern, which is most commonly used today in the trading world.
- Further, different advance mathematical models were incorporated to analyze data trends such as price correlations, moving averages, and regression analysis. However, today the technical analysis is not limited to just these but statisticians have started identifying many more useful technical indicators.
- In addition, with improvements in the field of computer science, a person who is smart at coding can cook up a great code to interpret volume or price data using any one particular technical indicator of importance.
Other Analytical Approaches of Greater Importance
- Employing a candlestick price chart that is capable of showing the price history in terms of buying and selling
- Others technical price charts with suitable technical indicators to generate new trade schemes
However, the most important part in a technical analysis is the ability to read the charts and interpret the data accurately amidst the cluttering of data and information overload. Hence, technical analysis is very useful in identifying trading trends, potential mismatches, and behavioral proclivities in trading opportunities.