Technical Analysis and fundamental analysis are merely two different analysis methods. In a nutshell, technical analysis looks at price actions and indicators, and uses this data to predict future price movements. Fundamental analysis, however, looks at economic factors, business fundamentals, stock price value, etc.
Technical Analysis was truly an arcane art before the internet boom. Chartists perform technical analysis in their secret rooms with data that was carefully collected from professional sources. Those were the times when stock prices and data did not have a medium through which to be readily available to the public and be ran through publicly available technical Analysis software to produce the charts that are available today.
Today, with internet in almost every household, technical analysis became an art anyone could practice. Complex charts, technical indicators and analysis that was once the sole domain of a few highly paid Wall Street analysts are now available to anyone who wants it, often for free. Technical analysis also became linked to short term aggressive trading instruments such as stock options and futures because of its excellent short term predictive nature.
With technical analysis this popular, I feel obligated to teach you once and for all everything you need to know about how to conduct proper technical analysis before you start looking at your first chart. A lot of amateurs fail at technical analysis simply because they didn't have the necessary basic knowledge to understand how to interpret technical indications properly in the first place. With the knowledge in this article, you will definite experience more success at technical analysis.
Technical analysts, or chartists, believe that by analyzing stock price histories, they can discern sufficient information about the thinking of buyers and sellers to anticipate future events. The assumption is that there is useful information to be gleaned, hidden within price histories; that technical analysis is a way of analyzing the past actions of the people participating in a particular market, as reflected by their actual transactions. As the assumption of an efficient market is central to almost all option pricing theory, financial mathematicians working in the area of derivatives generally reject technical analysis as unscientific. All large investment banks, however, employ both technical analysts and financial mathematicians. Technical analysts use technical Analysis software to perform technical analysis or charting as it is also commonly called. These charting tools are very helpful in providing information.
There is a myth that more complicated the system lesser is loss and more is profit. Thus many indicators and variables are added for testing. This may work perfectly fine for past data as we are back fitting those indicators which already worked. However in live data we do not know what would each variable have impact on our trading system on its own. If one checks systems of great traders (Turtles or Wizards) they made more money with simple system with best money management tools.
With fast moving markets and every old trading strategy's life becoming shorter by the day back testing has become norm more than experiment. Newer ideas and strategies are developed rapidly and thus back testing becomes part and parcel of this regime.
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