Why is Technical Analysis so Important?

Trading in the old fashion way, when investors relied their decisions solely on the fundamental background, is long gone and now the technical analysis had taken the center stage. As many of you know technical analysis consists of studying past performance of a particular financial asset in order to be able to anticipate future moves.

So why is Technical Analysis so important?

technical analysis

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As a part of trading analysis, it is very important to master this skill as it can enable you to understand the moves in the market.

The order flow is what drives the markets on a day-to-day basis and the price action is generated by it. By learning methods and strategies that can help you understand why a particular asset is behaving in a certain, you can anticipate future moves and profit from them.

As John Bollinger said: “Technical analysis works precisely because people look at it. And if people care, I care”. Simply because other people are using makes it work and if it works you have to pay attention to it.

Key principles of technical analysis

In order for you to understand and master the technical analysis, you need to understand the following:

  • Understanding supply and demand zones;
  • Understanding what is the market rhythm and how to find it;
  • Price action rules (impulsive moves vs. corrective moves, consolidation, reversals, etc.)
  • Understanding price indicators and how you can incorporate them into your strategy.
  • Buy very low and sell very high;

These are some of the key features which we’ll discuss in detail in future articles. From the beginning, we have to mention that as with many other endeavors, technical analysis is a skill and it takes time to learn. It takes a huge amount of time and dedication, so you need to first, study and then practice in order to learn how to apply the things that you’ve learned.

To sum up, trading analysis is one of the basic knowledge a trader must master. In our next articles, we’ll begin to discuss in greater detail more about technical analysis and hopefully, the information we give will help you in your trading.

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