As an investor enters into a stock market, he needs guidance from
experts who can fetch him good returns. Since the stock market appears alien
to a first-timer there are several people who can help investors with
the necessary information and strategies. These people are usually
research analysts who predict and analyze stock market trends and make
forecasts for the day, week, month etc.
There are two types of analysts here:
A.Technical analysts
B.Fundamental analysts
Fundamental analysts basically work out the valuations of the company.
They concentrate on the financial soundness of a company, its market
rankings, liquidity etc. Their aim is to figure out if a particular
company is worth investing into. They also analyze the right time to make
investments in a company.
Technical analysts on the other hand, study the data and the financial
statistics of a company through various statistical tools and compare
the data charts over the years. They try to come out with predictions
about companies before everyone and enjoy an edge over other market
decision makers. Their studies have a large influence on the investment
strategy of the investors.
The field of technical analysis is based on three assumptions:
1. The market action discounts everything
It is said that technical analysis ignores the fundamental factors and
stresses too much on price movements. It also assumes that the price of
a particular stock reflects all the fundamentals and factors affecting
a corporation. Technical analysts believe that media speculations don’t
affect a company’s price listing.
2. Prices of a company move in trends
Technical analysis say’s that once a trend has been witnessed on a
company’s graph, like up, down, fluctuating etc., the trend is likely to
continue in the long run.
3. History tends to repeat itself
They believe that the market psychology and sentiments are key factors
in making the current investors behave like their previous generations.
IMPORTANCE OF TECHNICAL ANALYSIS
Strange market movements generate a panic amongst investors and they
wish to know the reasons for such volatile movements. Many of them try to
understand market pricing and the reasons for the fluctuations.They
also seek to comprehend complex statistics, graphs, charts and come out
with satisfactory conclusions. The role of technical analysts is very
great here and they can act as market stabilizers through their expert
views and knowledge.
Technical analysts have a huge knowledge and look at all the factors
affecting a share price. Hence it becomes important to approach a
technical analyst for technical analysis and right information related to
stock pricing and market trends.
Conclusion
Hence, if you are looking to maximize your short term gains and returns
technical analysis can prove out to be handy. Technical analysis is
always a reliable tool that furnishes market knowledge but solely relying
on it may create in you an ability to ignore your fundamentals. So an
investor needs to be circumspect and approach the right people.
Interaction with experts is a very important need.
Written by Will Smithston. Striving to achieve financial freedom? Join
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