Let's start with the assumption underlying the technical analysis. In
this case I would take an extreme approach so that you can understand
how a technical analysis used in obtaining the gain in forex trading. Of
course in practice it is not so. You can combine both analysis
(fundamental and technical) in order to obtain the best trading system
for you.
The chartist (parties who perform technical
analysis), believe that they can figure out the patterns of price
movement rate at a future date with based on the observations of the
movements of the exchange rate in the past. In short they hold this
jargon: "History always repeats it self." This philosophy is of course
contrary to the fundamentalists in which investment decisions over the
value of a currency is based on the fundamental factors for economic,
political and monetary
are concerned.
The main weapon
of the technical analyst is a graph (chart – that's why they called the
chartist). Through the chart this is they can look at the trends that
are taking place, a span of trend, the volume of transactions and the
psychological levels. If you have been able to know 4 things, of course
huge profits soon will be gushing to pay you. Let me Re:
1. The ongoing trend
2. The volume of transactions
3. Level-level of the psychological (support and resistance)
4. The period of time that occurs.
Yup, that's it. Indeed the purpose of the chartist is predicted to four of these things. But now the question is how accurate our ability to predict the price? Well that's what indeed must be a continuous exercise in each day. There is no one perfect method both fundamental as well as technical. Experience and self holds the central role here.
What is technical analysis have weaknesses? Of course. As I said just now, no one is perfect. Let me sarikan the second weakness of this analysis in the form of a table:
| Weakness in Fundamental Analysis |
Weakness in technical analysis
|
| It takes long time to gain information. | It requires a lot of data to support the prediction accuracy |
| Is often subjective in nature because it involves a lot of people's opinion. | Relies heavily on the ability of the chartist. Each has a different method of chartist and each match is not necessarily applied to each other. |
| More suitable to be applied to long term period of trading. | |
| It is difficult to be applied to the market is not efficient. |
Well that's it for the introduction on technical analysis. In the next section we just became acquainted with graphic. Surely you don't want too much information that eventually even makes you dizzy isn't it?
