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The Power Behind A Good Technical Analysis

Sat Mar 20 2021 18:47
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All the traders want to use technical analysis to get many benefits out of their trading portfolio. But they want to know about the power behind a good technical analysis. What drives the technical analysis? What makes it more profitable? All these questions pop up in a trader’s mind. 

A trader must have to find out what is the actual power behind the technical analysis. Because if your technical analysis is not that effective, then you can make it more effective. You just need to get that power and add it to your technical analysis strategy.  

Deep dive into good technical analysis 

So here in this post, we are not going to talk about just a single trading strategy. We are going to talk about the factors that empower technical analysis. Knowing all these factors can turn all the trading strategies into effective strategies. Your technical analysis will start showing you better results. 

You will find that your trading is improving and gradually you are increasing your profits. But you can do it only if you add real power to your technical analysis strategy. So without wasting time anymore let's get to the point.  

Factors That Empower Technical Analysis 

First of all, we have to know all the factors that empower technical analysis. If we develop a technical strategy and give it to two different traders. Then you will find that there are different profit and loss results. Because both of those traders will use that technical analysis differently. 

No matter if one is a forex market trader or stock trader, so let's have a look at these factors.  

#1. Psychology 

Psychology plays a significant role in finance trading. No matter which market it is, from a commodity trading market to a stock trading market, everywhere you can find its impact. 

But different psychologies are working behind the technical analysis. Following are different psychologies working behind the technical analysis.  

Human Psychology 

The strongest psychology is human psychology. Because you are dealing with other humans in the market. Must understand trading psychology. Because it is beyond setting stop-loss or making buy or sell actions.  

Market Psychology 

Candlestick or chart patterns can help you catch the market psychology. Using trading software or online trading systems will also help. The whole market has a common psychological effect.  

#2. Technical Indicators 

It is not only used to find out the bearish or bullish market sentiment. There are many more things to do with technical indicators. Following are some common types of technical indicators. 

Trend Indicators 

If you love trend trading then you need to find out uptrend and downtrend. For such a benefit you need to use trend indicators. The whole market evolves around the trending metrics.  

Volatility Indicators 

Volatility indicators are used to find out volatility. We all know that volatility and liquidity are common but very impactful factors to consider. 

Momentum Indicators 

Momentum is also an important indicator. Many technical indicators come under this category.  

Volume Indicators 

Price and volume are the two basic but important factors that every technical analysis strategy deals with. These two factors are important because historical data related to them is derived and used. So volume indicators also play a key role in TA. 

#3. Trading Experience 

A trader’s experience also matters a lot and it provides better results. There can be different results of the same technical analysis strategy if a trader has more experience than others. 

In this arena of automated trading and algorithmic trading, TA has become more complex. No doubt technical trading is simpler due to many trading software. But still, there are complexities. 

Charting Ability 

Charting ability of a trader is the key skill required for technical analysis. Without charting ability a trader cannot read charts perfectly.  

Decision Making 

Decision making is also a key skill that a trader requires. You must be making decisions quickly in the trading market. 

#4. Planning & Discipline 

Planning and discipline are not only linked with technical analysis. But it is linked with profitable trading. These days there are many resources for advanced trading, but still, you need planning and discipline. Following are the major elements that you need. 

Trading Plan 

To make your technical analysis strategy successful, you need a proper trading plan. List all your tasks in your trading plan to get benefit out of it.  

Technical Analysis Strategy 

Your technical analysis strategy is also part of your planning or trading plan. You need to develop a technical analysis strategy before entering the market. 

Technical Indicator Alternatives 

Technical indicators fail sometimes. In this mobile trading arena, you need to use multiple technical indicators.  

#5. Technology 

Technology is also important to consider. It empowers technical analysis. You can see that a few decades ago, technical analysis was not that effective. But now with the help of advancement in technology, technical analysis has become more effective. Several technologies empower technical analysis. Following are major technologies. 

Platforms

Trading platforms are important and every day they are updated with exciting new features. All these features help a trader to make the technical analysis more effective.  

Tools & Resources 

Trading tools and resources are always there for the convenience of traders. They can also help you in making your technical analysis strategy more effective.  

Softwares 

There is other software too. This software is calculators and analyzers. You can also use such software to make your technical analysis effective.  

Things That Impact Technical Analysis 

You have gone through all the strengths of technical analysis. Now you need to go through weakness. Beginners must have to go through these factors that impact technical analysis negatively. These factors can be seen in almost all financial instruments.  

#1. Technical Indicator Failure 

The first thing that impacts the results and accuracy of technical analysis is the failure of technical indicators. You need to understand why a technical indicator is not working accurately. Following are some issues that cause technical indicator failure.  
  • Lagged Signals 
  • Lead Signals 
  • Error Results 
  • Mismatch Results 

#2. Lack Of Knowledge 

If you are trading currencies with experience in trading stocks, then you might face problems. Lack of knowledge is always a big issue for traders. You can enrol yourself for a trading course to get more knowledge and experience. 

There are many trading services to assist you. Following are common issues that will impact TA and its accuracy. 
  • Improper Planning 
  • Wrong Resources 

#3. Inappropriate Technical Indicators 

Choosing the wrong technical indicator will also make your technical analysis strategy less effective. You cannot get many benefits out of such technical indicators.  
  • Incompatible Trading Platform 
  • Incompatible Financial Market 

#4. No Discipline 

Having no discipline or planning will also lead you towards loss. Because a little bit of delay or lag will get you into the loss. Try to be disciplined before you enter the market. 
  • Lag In Decision Making 
  • No Homework 

Summary 

There is no single power that makes technical analysis effective and accurate. All these factors are important and as a trader, you need to pay attention to them. 

It is never recommended that you should neglect any of these factors. From trading experience to technical indicators, one must pay attention to all of these factors.  
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