Lesson 7 – What is Technical Analysis?

Technical analysis is the forecasting of future market trends and price movements through the research of market data and figures that are presented in charts. It is a perfect fusion of professional knowledge and the different methods of research. Technical analysis has the following advantages over fundamental analysis:

(1) Operability:

Any factors affecting the market will eventually be reflected in the price movements which can be plotted on a chart. By following the trends depicted by the graphs, we will be able to grasp the momentum of the market. This is something that fundamental analysis greatly lacks.

(2) High flexibility:

Technical analysis can be applied to all kinds of speculative markets. Once you have mastered its application, you will be able to simultaneously track as many markets as you like. In comparison, the complexity in data acquisition for fundamental analysis often overwhelms analysts so much that they are forced to concentrate on a single product or market.

(3) Applicable for any time frame:

Technical analysis can be flexibly applied to any time frame. You can apply technical analysis easily whether you are tracking price movement within the same day, or doing mid to long-term market analysis. This is different from fundamental analysis which is only applicable to macroeconomic studies.

(4) Clear buy/sell indicators:

The biggest advantage of technical analysis is that it is able to determine entry points in the trading process. No matter how well you can perform fundamental analysis, technical analysis is still more useful in actual trading.