Technical and fundamental analysis stands on the root of the decision making, which leads to a pleasant trading experience for traders besides the fact if they are experienced or beginners.
Technical analysis helps the trader to understand better what is happening in the marketplace and gain potential insight into what may happen next. There are five essential aspects to technical analysis that can, if better understood, help traders better determine when to open and close positions as well as offer clues to potential future price direction.
1. Market price action says all about it
A technical analyze is less interested in “why” an asset trades at a given price, and more interested in where it may be headed next.
2. The volume of trading offers important information
Many price movements - such as a breakout to a new high, for example - are generally considered to be of greater significance if accompanied by above-average trading volume.
3. Psychological factors drive the market in addition to fundamental values
Demand for a given asset increases or decreases based on the collective assessment that all traders make regarding the real or perceived value of that asset
5. Work to build your weight of evidence - not to find the Holy Grail
Trading signals can provide traders a clear set of criteria to look for and help them better identify potential trading opportunities.
Types of trends
Remember: "The trend is your friend!" There are three different types of trends: up, down, or sideways.
An Uptrend is a series of higher lows and higher highs over a given period of time. If you connect these increasing low points with a trend line you just provided yourself with a standard technical analysis tool that can help to identify whether or not an uptrend is still intact.
A Downtrend is a series of lower highs and lower lows. Connect these decreasing high points with a trend line provides you with a standard technical analysis tool that can help to identify whether or not a downtrend is still intact.
A Sideways trend is a series of highs and lows within a relatively flat or compressed range. Connecting these high and low points with a couple of trend lines can help to identify the trading range.
The fundamental analysis is based on an in-depth and all-around study of the underlying forces of the economy, providing data that can be used to predict future prices and market developments.
Fundamental analysis consists on: the analysis of the economy as one unit, the analysis of a particular industry or that of an individual company.
Three sources of profit
1. Your fellow traders
Mainly those who are less knowledgeable, less experienced, or simply too slow on the draw. Here you can profit by applying better trading skills and a better trading system.
Initial public offerings give you the chance to profit by the difference between the price of the stocks being public for the first time and the prices at which they will eventually settle. As a trader, your earnings will be well-deserved compensation for the risk you take on.
3. Moves of big companies
Big companies moves big in the financial markets, and play a role as portfolio builders for investors and traders. In this case, a trader's profit will act as compensation for the risks taken.