Technical Analysis Of Financial Markets – Are The Charts Accurate

April 4, 2011 by  
Filed under Forex Markets

The technical analysis of financial markets is a way to predict future price movements of equities, bonds, interest rates and commodity futures. There are some basic principals involved and there are also some advance mathematical techniques. This method of understanding the market began in the 1950s. The other method of predicting prices is called fundamental analysis.

Investors who use technical methods are call chartists. This is because they plot the price movements on charts and graphs. A chartists evaluates the patterns the price fluctuations make on the chart. There are certain patterns that occur frequently. These patterns indicate future price movements.

Clearly no system is 100% correct all the time, but the charts do seem indicate the future. However, evaluating the charts seems to be more of an art than a science. The movement of prices is extremely complex since it is the result of millions of individual decisions. No one truly understands the psychology behind the decisions of millions of investors. These decision are often not rational but rather are based on emotions.

Some successful investors will use a combination of both types. Fundamental analysis can identify those companies with an internal financial strength that makes them valuable. For example, a company that has good sales and a solid balance sheet may be desirable to own. Interpreting the charts can identify when the investor should buy.

The charts make interesting patterns. Often these patterns are recognizable. By studying the patterns on their charts, they are able to predict which way the market is going to go. There are people who strongly believe in studying the charts and the patterns they display. They make all their decisions for buying stocks based on the charts.

It is fascinating to study charts from years ago with the advantage of seeing what happened. Often the charts do predict the future, there are exceptions, but most of the time the charts are accurate. However, there is always an advantage to knowing what happened in the future. It is a little more difficult when the future can not be seen.

Human emotion is the great mover of prices. Everything has upper price resistances and lower price supports. Prices tend to fluctuate between these resistance and support levels. When they break out of the two points of support and resistance then a lot of money can be made or lost. These peaks and values are based on the human psychological emotions of feeling that a price is too high or too low. When a price is considered to high there is motivation to sell. When a price is considered too long there is a motivation to buy.

If you are interested in learning more about the technical analysis of financial markets there are many places where you can study this fascinating subject. Some people have devoted their entire lives to this interesting topics. You can even learn about it on the world wide web. Other people learn about it from books. Still others like taking seminars and classes that teach them how to read the charts. Perhaps you will learn to do it and make a lot of money buying and selling securities. You never know because anything is possible.

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