Why Technical Analysis is important for a trader?
Technical analysis is not necessary to make long-term profits from financial instruments such as stocks. There are plenty of examples of investors that have achieved long-term success using fundamental analysis and similar methods.
However, technical analysis can prove to be an important tool for certain types of trading where entering and exiting at the exact right moment is important, as opposed to more long-term buy-and-hold strategies.
Technical analysis is not a science and it is easy to get lost among the charts and signals and indicators and diagrams, but if you are willing to devote some energy into the study of technical analysis you may find it to be an important tool for you as a trader.
If nothing else, understanding technical analysis can help you predict how traders that adhere to technical analysis methods will react.
The trend is your friend
- Technical analysis can help you avoid getting mesmerized by carefully pruned balance sheets, bombastic company policies, overly optimistic sales forecasts, and all those other elements that can lead a fundamental analysis trader astray. As technical analyst, you look at the hard-core facts about how the market has actually treated this stock in the past and over time.
- Technical analysis can help you spot a trend before it becomes noticeable to the masses. Of course, since you are dealing with a finely calibrated tool, there will also be false starts.
- Paying attention to minute-by-minute trading volume will give you clues about market reversal points. The more experience you gain, the more skilled you will become.