Technical Analysis concept may sound confusing in the start but once learnt, you will be able to get great help in making trading decisions with use of price chart.
Using the price chart you can look through the price changes happened during a specific period of time. The price chart truly represents the trader’s emotional strength during that specific time period.
The market prices will rise quickly for an asset if optimistic news comes for that asset. In case of unfavorable news the prices will go down according with the results. The price chart reflects both these ups and downs to give the complete information about changes in prices.
However, future events that may cause changes are unknown and thus, they don’t have any effect on current price shown.
It is assumed by Technical Analysts during their operations that price chart successfully shows complete information regarding the current conditions of price of an asset at a specific time period.
For traders, it can be quite confusing to directly read and understand a price chart. This is because the price movements are usually inconsistent and disorganized with little explanation for change. You can see the EUR/USD pair’s weekly price chart below. This chart shows both ups and downs of prices and also concept of congestion which is difficult to analyze for traders.
At this point, you can use indicators as a great help.
Using the indicators with the information on past price can help a lot in making trader understand what is going on actually and also can assist him in making decisions. There are a lot of indicators available for use. However, the key is to understand how to use an indicator in the best manner. Technical Analysts must understand and acknowledge a universal concept which is:
Trading System (with no indicators) gives 100 percent performance.
Again, you must keep in mind that price action is a future event which is impossible to predict. This is most important when you have to use information of past price to make decisions.
At this point, price action helps the traders by a big margin.
Price action process helps you in reading the price chart (with no indicators) while making important trading decisions.
One of most important things during analysis is the skill to identify the trend.
Many traders who have expertise in Technical Analysis and understand that the future prices are hard to predict, use Technical Analysis to get successful in their trading decisions. And, this gives them a significant edge.
Traders can possibly identify a trend which it is in single direction for a long time and may presume that this trend will continue in that direction in future too. If the trend is towards the down side then trades will begin short positions to try to bring this price trend to balance. Similarly if the trend is towards the up side, traders will look forward to buying long positions to get benefits for themselves.