Technical Analysis – How To Analyse Financial Markets And Assets

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Technical Analysis – How To Analyse Financial Markets.
Technical analysis is the best way of predicting short-term price movements. For binary options – https://go.binaryoption.ae/OZ3atI traders, forex – https://go.binaryoption.ae/uQU149 the use of technical analysis is without alternative. To help you create your own successful technical analysis strategy, this article will explain the basics of technical analysis and its use in binary options trading.
In this article, you will learn:
What Is Technical Analysis? Why Do Traders Use Technical Analysis? Should Binary Options Traders Use Technical Analysis? What Could A Technical Analysis Strategy Look Like?
With this information, you will be able to understand the logic behind technical analysis and use a technical analysis strategy to trade binary options.
What Is Technical Analysis?
Technical analysis is a way of understanding what has happened to the price of an asset and predicting what will happen to it next. The unique characteristic of technical analysis is that it focuses solely on price movements.
When they analyse a stock, for example, technical analysis ignore everything about the company behind the stock. They are not interested in its earnings, nor its economic future, nor the quality of its products. All they look at is what its stock price has done in the past and which implications this history allows for the future.
Technical analysis is based on a simple assumption: everything that you can know about a stock is already factored into its price. By looking at the price, you can learn everything about a stock, and you can learn a lot more than with any other form of analysis.
Predicting Financial Markets.
For example, assume that you are supposed to predict how many people go into buildings every day. You know that thousands of people a day went into a building for a year. You also know that only two or three people a day went into the building next to it. This knowledge is all you need to predict that more people will go into the first building than into the second.
This process is exactly how technical analysis works. It focuses solely on the thing you are trying to predict and ignores the reason behind it.
In the building example, the first building might be a train station and the second one a small house. You could spend a lot of time gathering this type of knowledge, but what good would it do you? It would only tell you what you already know from looking at the numbers alone.
But if there are two small houses, what do you predict now? You would need to find out which house houses a family and which a single person, which of them has more friends, forex and so on – an endless task that would never get you all the information.
Alternatively, you could also analyse how many people went into each house in the past.
If the relationship is 10 to 2, you know what you have to predict. Likely, more people will go into the house with the 10-people average. If the relationship is 5 to 4, you could think that this one is too risky to predict and analyse the next houses.
Technical analysis adapts this philosophy to financial investments.
If the price of an asset currently is rising, it is unimportant to understand why. The fact that it is rising tells you everything you need to know to make a good investment. If the price of an asset currently is falling, it is unimportant to understand why. The fact that it is falling tells you everything you need to know to make a good investment.
Technical analysis follow this principle and also allows you to analyse many characteristics.
Why Do Traders Use Technical Analysis?
When traders of all types analyse the market, they have two options. They can use:
Technical analysis, and Fundamental analysis.
We have already explained what technical analysis is. Fundamental analysis is the prediction of price movements based on economic data, earnings, and other indicators of a stock’s, commodity’s, or currency’s future.
Fundamental analysis assumes that there is a direct connection between these values and the price of an asset. While the market often fails to reflect this connection right now, fundamental analysts assume that the price will eventually adjust to these factors.
There are several good reasons why traders choose technical analysis over fundamental analysis.
There Are Many Things That Are Impossible To Quantify.
For example, the electric car company Tesla is valued at a much higher price than many other car makers in the world. This is despite the fact that Tesla has never turned a profit and only sells a fraction of the cars that other companies sell.
How do you justify this price based on technical analysis? Many people buy Tesla because they like Elon Musk, and because they think that electric cars are the future. But why do so many people put so much more trust in Elon Musk than in other managers? After all, they never heard of most of these other managers, so