Learn Technical Analysis (63)

Learning can be either self-taught or assisted. If you are eyeing to learn technical analysis using the former method, there are scores of free online resources, including tons of free training tools on several CFD broker websites and sites like Asktraders.com. Besides, there are several books authored by John J. Murphy, Martin J. Pring, Scott M. Carney, and others, which cater to different levels of traders.

However, if you choose assisted learning, there are several online tutors and training courses to assist beginners in learning all the critical elements involved in chart analysis.

The time one generally takes to learn technical analysis depends on the need, urgency, and effort. If you’re not planning on investing straight away or have enough time on your hands, you could as well start with reading books or going through the tons of free online material. While it certainly helps, it is time-consuming.

On the other hand, if you are preparing to invest in a big way over the next few months, it’s advisable to hire a professional analyst to help you master technical analysis, and enhance your learning curve.

The principal behind technical analysis is to forecast prices based on market-derived data, and to that extent, it works. Just as fundamental analysis measures the intrinsic value of a security to predict the likelihood of future prices, technical analysis is also about probability. It does not guarantee profits always and is valid as long as it works more often than not.

So, technical analysis is not only a useful tool to predict prices of financial instruments, but it also comes with adequate risk-management systems that ensure capital protection in the case of adverse price movements.

Technical analysis broadly comprises of chart analysis and technical indicators. The former is about analysing the price trend, defining supports/resistances and eyeing chart patterns. The latter is about applying mathematical formulas to determine momentum, volatility, divergences, overbought/oversold levels and other forms to aid chart analysis.

While technical analysts employ price data as the primary indicator to evaluate charts and chart patterns, technical indicators are predominantly secondary tools and often used to validate chart studies.

Yes, professional traders use technical analysis, although several of them use it in combination with fundamental analysis. However, there are some well-acclaimed investors like Warren Buffett who do not use any form of technical analysis to carry out investments. That’s because chart analysis has hardly any role when it comes to value investing.

On the other hand, technical analysis plays a significant role in the trading decisions of a professional trader, be it for a positional, swing, or day trading.