Technical Analysis is quite often used by traders as a fast and easy technique to make an impact on the market. To be realistic, technical analysis is quite opposite to quick and easy. This means that if someone takes this approach as a way to make money fast without studying it before and knowing what this analysis can bring for you, then disappointment is inevitable.
Technical analysis is the observation of historical price behavior in order to find out insights and determine the possible future movements in the markets by using technical indicators, studies, and other specific tools.
Why are decisions based on technical analysis? Technical analysis is a smart tool which can help you decide not only when to invest and where to invest, but also, when and where to leave the market, so you keep your capital safe.
This analysis is based on the theory that the markets are chaotic, which means nobody knows what will happen for sure, but at the same time, price movements are not 100% random. In a few words, the Chaos Theory in mathematics proves that within a state of chaos there are identifiable patterns that tend to repeat.
We can mention here the weather forecast, a type of chaotic behavior. Like the weather forecast, most traders will say that they are not able to predict the exact price movements. As a result, being successful at trading is not being right or wrong. It is about determining probabilities and placing the positions when the conditions are in favor. Determining probabilities includes forecasting the market direction when to enter into action, where to open the positions, and equally crucial is determining risk/reward ratio.
With all we said above, there is no certain formula to unlock the secret of trading strategy. The keys to success are smart risk management plan, self-discipline, and the ability to control emotions. Anyone can guess right and win every once in a while, but without risk management, it is virtually impossible to remain profitable over time.
Bull flags form after a price spike that peaks out and slowly forms a short-term reversion downtrend. The starting points for the trend lines should connect the highest highs (upper trend line) and the highest lows (lower trend line) to represent the flag portion.
Bear flags form after a large price collapse that attempts a short-term up trend reversion. These are the opposite of bull flags. The trend lines connect the lows and highs starting from the bottom.
1. Identify a technical analysis strategy
2. Identify tradable securities that fit with the technical strategy
3. Find the right brokerage account for executing the trades
4. Select an interface to track and monitor trades
5. Identify any other applications that may be needed to implement the strategy
Fundamental analysis is the technique of predicting the future price of an asset which an investor wants to trade. It is related to the examination of the worth of a company to evaluate if the current price of the market is fair or not, it means understanding if it is overpriced or underpriced. It is believed that taking into consideration the economy, strategy, product, financial situation and other related factors will mirror the market and provide consistent gains to the investors. It is necessary to analyse the forces that affect the interest of the overall economy, industrial sectors and company. It tries to forecast the future movement of the asset prices using those signals from the economy, industry and company. It asks for an examination of the market from a wider perspective.
Fundamental analysis is based on different data, issued for free from companies and governments for the public. They include corporate earnings reports, geopolitical events, central bank policy, environmental factors. There are many factors which influence these reports and eventually the markets.
Inflation is the level at which the prices for goods and services raise. Central banks try to limit the raising rates, in order to keep the economy running safely. They try to do so by hiking the interest rates. When a rate hike is announced, the respective currency is appreciated.
Information from labour markets is presented by non-farm payrolls, which has usually high influence in indices and forex markets. It is released on the first Friday of every month. It shows the total number of paid US workers of any business. Let’s say for example that the non-farm payroll is increasing, this is usually interpreted as the economy is getting stronger and people tend to raise their investing levels.
Gross Domestic Product is a measure of all goods and services produced yearly. Traders and investors look at GDP growth to know if the economy is getting stronger or weaker. When the economy is getting stronger, companies generate higher profits and people generate more money, which eventually lead to a rise in the stock market and a stronger currency.
The point with defining the word fundamentals is that it can cover anything which has to do with the economic well-being of a company. They include numbers like revenues and profit, but they include things like a company’s market share to the quality of its management.
The fundamental factors can be grouped into two categories: quantitative and qualitative. By definition these terms mean:
• Quantitative – capable of being measured or expressed in numerical terms.
• Qualitative – related to or based on the quality or character of something, often as opposed to its size or quantity.
As you can understand, quantitative fundamentals are numbers. They are measurable characteristics of a business. This is the reason why the main source of quantitative data is financial statements: revenue, profit, assets, and more can be measured with great precision.
The qualitative fundamentals are less tangible. They might include the quality of a company’s key executives, its brand-name recognition, patents, and proprietary technology.