Learn Technical Analysis - Why It's Important To Evaluate The Market

Inexperienced investors almost always say the same thing about the stock market when

they start trading for the first time: it's chaotic, intimidating, and complicated. It's true that the stock market is dynamic place, and prices are constantly moving in cycles of growth and decline at any given moment. Although these cycles can be disconcerting for some, it's important for new investors to become comfortable with them, because they are not only natural, they are necessary if you ever want to have an opportunity to make money on the market. One of the best ways to learn to use these fluctuations to your advantage is to learn technical analysis.

If you've never thought about how important it is to learn technical analysis before, you should consider how useful it would be to have the ability to see into the future. Many investors will tell you how much they wish they could just go back in time to take back that one misinformed trade, or to buy up ten times as many shares of a stock that was about to blow up. Instead of wishing you could rewind the past, why not use a method that's proven to make it possible to use stock market data to make educated predictions about the future?

When you learn technical analysis, you'll begin to see that the market's up and down movements are actually indications of public interest in certain stocks, as well as their relative stability and potential for profit. While fundamental analysts will spend much of their time researching qualitative aspects of a security, like company history, financial stability, and public demand, the technical analyst believes that these things have all been accounted for and displayed in the market price. This allows the technical analyst to concentrate only on price patterns for their research.

On your journey to learn technical analysis, it's important that you start by exploring the three main assumptions that guide its practice. Once you understand these basic principles, you'll have a much better appreciation for why the technical analyst trades in the way that he does. First, technical analysts believe that the market adjusts for outside influence (as stated above). Second, the technical analyst believes that the market prefers to move in trends, and will continue to do so, as long as nothing moves to interrupt it. Third, the technical analyst believes that history is destined to repeat itself, meaning that patterns spotted in the past can be used to help predict the future.

by: Aaron Livingston

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