Technical Analysis

Technical analysis is a statistic-based prediction of the market. The main disadvantage of this method is that the technical analysis uses past data to predict future.

The probability of correct prediction depends on fame of technical indicator. This means that if I know about this indicator and it is well-known to other people and all of us do know that if it grows 50 or crosses its average higher than 70 the market will certainly grow up because I shall buy and all other people who believe in prediction of this indicator will buy too. As the demand increase the price of certain interest will increase as well.

Then why do people use technical analysis? To predict future of course! But the main question is not "why?" , but "how?". How do they use that?

There is variety of technical indicators described in lots of books (see Suggested reading) and there are two ways of its usage:

1) Irrational

2) Rational

Irrational way means that people believe that there is at least one correct indicator which never mistakes and spend their time and money to find it out. Sometimes they have luck.

The rational way means that you use the scope of fundamental and technical analysis. The fundamental analysis can say you what to do and the technical one - when. Such usage of technical analysis sets it to be an important part of trading strategy.

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