Why Should I Learn ‘Technical Analysis’?

Why should i learn Technical Analysis

Trading securities can be as effortless as pressing a ‘buy’ or ‘sell’ button on an electronic trading account. Several advantages that institutional traders have over the average retail investor, like the costs per trade, and the level of information and access to expert analysis, continue to shrink. Today, the key differentiator is no longer technology or speed, but, just like the old days, a profitable trading strategy.

Money doesn’t simply disappear from an account when a trader make a loss. It flows into the account of a trader with a better system and set-up. Most professional traders understand technical analysis. Moreover, institutional and professional traders are also equipped with state-of-the-art tools and technologies. These are the factors that allow them to easily outsmart and outperform beginners.

So then, as a beginner, can you even dream of beating these pros without sufficient knowledge of how the market works, and how to take advantage of the moves of the market? Answer is a vehement, No.

A trader who does not understand the ebb and flow of the market is destined to lose. Technical Analysis offers the right solution. It builds strategies that the trader can use to react to a specific market situation. No matter what market does, a technical analyst, a seasoned one, will have a plan & rules to trade it right.

Traders and investors have three basic questions: ‘which stock to buy’, ‘where to buy a stock’, and ‘when to buy a stock’. As mentioned above, technical analysis answers all these questions on a stand-alone basis, especially the when to buy and where to buy. No other analytical system can correctly offer the timing perspective to buy and sell trades. Hence, every trader must learn Technical Analysis, which is considered the best method to analyze price movements.

Today, even large financial institutions, hedge funds, banks, and treasuries and even some of the top individual investors in the world have a division specifically for Technical Analysis.

Here is what Technical Analysis can do for you:

  1. Trend identification - The key to investment and trading success is to identify and anticipate trends. Trend identification is central to Technical Analysis and is achieved through both classic as well as modern mechanical systems.
  2. Timing of trades - Due to its nature, Technical Analysis offers multiple tools and techniques to catch trend reversals achieved through Support & Resistance studies among others.
  3. Trade management - Successful trading is not only limited to buying a stock and then maintaining a status quo. You need to manage the trade and subsequently exit when the trend is about to end. Successful traders know that simply spotting a buy-worthy stock is not enough. It requires low-risk entry, managing an open trade, and then identifying the right time to exit.
  4. Fast - Efficient in doing bottom-up as well as top-down analysis. It isn’t as time-consuming as fundamental analysis. Certain Technical analysis systems are completely mechanical in nature allowing you to simply follow the set ups generated by a software.
  5. Alpha generation - Technical Analysis offers sophisticated tools to create alpha (outperformance) of the portfolio as well as market neutral trading systems.
  6. Diverse strategy - Different strategies can be designed or created to take advantage of different stages of market movement. One size never fits all. Knowledge of technical analysis allows one to create virtually any kind of strategy by mixing components of price, pattern and momentum analysis to suit one's trading needs.

Technical Analysis professes a rule-based approach to trading and investing. It has universal appeal and can be applied both objectively as well as subjectively.

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