The Top 3 Pros And Cons Of Forex Technical examination
Technical examination has been a part of financial practice for many decades. It is a method of prediction price movements and future market trends by using chart. It is necessary for you to know the pros and cons of technical examination so that you can trade with complete ease.
There is no doubt that technical examination is the easiest and most precise method of money trading. So, let’s find out the top 3 pros and cons so that you can trade with complete ease.
1. Provides All Current Information
The current price reflects all currently known information about an asset. While rumors may regularly suggest that the price may plummet or surge, ultimately the current price is the balancing point for all information. As investors and traders sway from one side to the other – buyers or sellers – the asset moves reflecting the current perception of value.
2. Prices Move in Trends
If prices just gyrate wildly and randomly it would be very hard to make money. While wild gyrations do occur, overall prices typically move in trends. There is a directional bias to the price which provides traders with an advantage. Much of technical examination is about calculating when a trend is in place, when it isn’t (called a sideways market, range or correction), and when a trend is reversing.
Most profitable trading methods used by traders are trend following strategies. This method you isolate the trend, and then find opportunities to go into in the same direction as the trend, consequently capitalizing on the direction biased price movement.
Trends occur on various “degrees”. For example, you may have a long term uptrend on the daily or weekly chart, but on shorter time frames – or at the far left of a chart – you may have a downtrend.
A major advantage of technical examination is that it provides you with ways to ‘time’ your trades. With a basic approach, your research may dig up some interesting news on a company’s stock that you think may cause it to rise in the future; but when?
With Forex technical examination you can wait and use you money for other opportunities until the price tells you the stock is ready to move higher.
As there are both merits and demerits of technical examination, it is also important for you to know the downside. So let’s check out the cons now.
1. It can be dangerous to depend totally on the assumption that today’s prices predict future prices. They often do, but not necessarily.
2. Replying on charts completely will not help you to pick up the signals about the changing of a trend until the change has truly taken place. This method you could miss up to one-third of the fluctuations in money trading.
3. It is also possible in money trading to act on a pattern prematurely or in a bit of a panic. If a large number of money traders do this, it can create a self-fulfilling prophecy.
Go by the points above on the advantages and disadvantages of technical examination to get more familiar with Forex technical examination while trading.