Pros and cons of technical analysis

Online trading is a concept growing in popularity and the number of users. Nowadays you can trade stocks online, but also buy and sell currencies on the Forex market. In addition, you can trade all this through binary options via brokers like 24option, together with other assets like commodities and indices. Every online trader who wants to be successful needs to analyze the market and base the trading on the findings. Fundamental analysis is one of the approaches many traders use, and we will give you some of its advantages and disadvantages. If you can’t go yourself you can trust a software like the one reviewed at http://cybermentors.org.uk/fintech-ltd-scam-software-or-legit/.

Who can make use of technical analysis?

There are various traders who can make use of technical analysis. Generally, day trading and swing trading can benefit the most from this approach, because they rely on short-term periods. Technical analysis relies on historic data about the market, and presumes that all market behaviors repeat themselves in cycles. By analyzing the history of the market movement, the traders are able to predict the future movements and perform the trades accordingly.

technical-analysis-and-fundamental-analysisBinary traders are considered day traders, so they have the most use of this type of analysis. However, trading on Forex market can also be done in short intervals, so day and swing traders on this market use the technical rather than fundamental analysis.

Pros

One of the main advantages of technical analysis is that it enables the traders to define the specific time when they should buy or sell an asset. They can predict the best entry and exit time for each trade if they are skillful enough, which can maximize the profits. It provides the traders with short-term market indication, which is useful for short-term trades and enables the traders to predict the outcome more easily.

Another advantage of technical analysis is that it provides visual indication of changes in the market. This makes it easier for the traders to follow the trends and make right decisions in the right time. Generally speaking, this type of analysis is ideal for those trading on short-term expiry periods.

Cons

11097457385_de2126291c_zWhile there are certain benefits of technical analysis, there are also certain drawbacks. One of the drawbacks you will hear most people point out is that technical analysis relies on the past. Even though it can help us predict the future movements, it does not account for unpredictable events and market movements. Also, technical analysis fails to take into account the factors that influence the price of certain assets, like the history of the company, their trading policy, current political situation and the like. We can say that, in a certain way, technical analysis lacks “human factor”, which inevitably influences the prices and conditions in every market.

Technical analysis is not suitable for long-term trading, such as position trading. Since it only deals with technical details and the analysis of the past, it cannot successfully predict the situation that may occur on the market in future. This is why such traders are much more likely to benefit from fundamental analysis.