Understand the Markets to Dominate Them
Knowing the markets inside and out allows you to approach it wisely and profitably. There are two key methods to analyzing the global financial markets: Technical and Fundamental Analysis. Technical analysis examines the price movements of assets, with technical analysts typically using historical data to predict the prices of assets in the near future. Fundamental analysis (which will be covered in the second half of this chapter) examines the underlying causes of price movements such as the political, social and economic forces which drive market demand and supply.
When it comes to technical analysis, what forms the basic premise is the belief that all market information available at all times is already reflected in the asset price and its movement. Therefore, by examining historical price movements, traders are able to make informed decisions when it comes to the financial markets. Charts form the bulk of a technical analyst’s arsenal, and they are used to identify trending and ranging markets. Recurring patterns on the charts indicate future price movements accessible through the study of trend continuation and trend reversal patterns.
Types of Charts
A chart can be thought of as a visual representation of the interaction between buyers and sellers in a market. It is extremely useful as a means of understanding the total sum of what is going on in a market. A vast majority of traders today, especially those who actively trade, rely on their favorite charts to analyze the market. Charts are a reflection of all the activity which takes place for any given traded instrument, and as such shows how the market values that particular asset based on all the information available. There are three key types of charts: bar charts, line charts and candlestick charts, which are described here: