If you do not know what is Technical Analysis, read this first: Back to Basics #1: What is Technical Analysis?
In this chapter, we’ll discuss what the advantages of technical analysis are and why it’s important to you as a trader to use technical analysis.. Since the market price is a reflection of all fundamental news known to the public technical analysis can be used on its own merit. Going forward, we’re going to explore what are the main benefits of technical analysis.
The main benefit of using technical analysis is that it gives you a visual representation of the price action. Technical analysis also provides you with all the necessary tools to analyze the current market trends which bring us to the first benefit of technical analysis:
1. Timing Your Entry and Exit Points
If you’re a versatile trader, technical analysis can give you the ability to have precise entry points while also closing your position at the right time.
2. Reading the Market Sentiment
3. Overbought and Oversold Conditions
4. Identifying Repeatable Price Patterns
- Reversal patterns, which signals the end of the trend and the beginning of a new trend.
- Continuation patterns, which as the name suggests signals a continuation of the prevailing trend.
Trading based on price patterns works because the price reflects human psychology and human nature doesn’t change much. Technical analysis can help you recognize these price patterns and trade them for a profit.
Thanks for reading!