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.
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 Jesus Smithston. Striving to achieve financial freedom? Join The Team Wealth Builder community and get to know about the different streams for investing money to get rich. Visit TeamWealthBuilder for tips on how to invest on long-term income building methods to get out of the rat race. Get yourself interested in the discussion about stock markets, real estates, mutual funds, businesses, web sites and much more and drive yourself to the financial freedom sector.