Key benefit of trading using charts

The History

It was from the Charles Henry Dow theory that technical analysis evolved. He was the founder of the Wall Street Journal as well as the co-founder of the Dow Jones Company. The study of technical analysis focuses on the future price movement of an asset be it stocks, Forex or commodities. The analysis looks at the past performance of the stock and depicts its future movement.

The study uses the theory of supply and demand to understand how the market works. It identifies patterns and signals that let one profit from the trades.

The Dow Theory about investments is the backbone of technical analysis and serves as a guide on how the approach works in the market. Technical analysis interprets these theories to generate trading signals.

Technical analysts believe that all the information about the asset is known in its price. The change in the price of the security will give you all the information about the security from all the sources.


Key benefit of trading using charts

Investors and traders have finite funds and when they trade using fundamental analysis, even if the research is accurate, there is no time limit for the trade to work out. This means that their capital is tied up for very long. Check the resource for this article.

For example, let us assume that as per fundamental analysis you get to know that a certain company A is a good buy. This may be because it is about to become a major player in the respective sector and then you think of investing your capital and buying the stock. However, what your research fails to tell you is that when the movement would begin. It may take just a few days or even months and thus your capital gets tied up indefinitely. This makes you miss out on other profitable opportunities.

Technical analysis on the other hand looks at the catalyst that is about to make the stock price move. This means that you do not have to wait or tie up your capital. You thus need to invest when the catalyst is triggered. If not then you put your money into some other profitable trade and then when time comes then buy the shares of the company A.

Can you rely on technical analysis completely?

It is important to note that technical analysis is not 100% accurate but it indeed is a smart way to trade and is a viable tool. Use it with fundamental analysis and this will increase your probability of profiting in the trades.

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