How does the Technical-Analyst make Money ?
You might have read in the earlier posts that on average 5% of the time the Algorithmic-Trading has to been stopped… from this point of time, the Technical Analyst makes the money, but how ?
Technical Analysis – these simple words may conjure up many different mental images. Perhaps you think of the stereotypical technical analyst, alone in a windowless office, slouched over stacks of hand-drawn charts of currencies pairs prices. Or maybe you think of the advanced multicolored computerized chart of our favorite currency-pair or stock you recently saw. Or perhaps you begin dreaming about the money you could make if you knew the secrets to predicting stocks or currencies-pairs prices. Or, maybe you remember sitting in a finance class and hearing your professor say that technical analysis “is a waste of time.”
Technical-analysis is rooted in basic economic theory. In its basic form, technical-analysis is the study of prices in freely traded markets with the intent of making profitable trading or investment decisions. Technical-analysis believes that “the market is always correct”.
How does the Technical-Analyst make money ?
The indicators and measurements that technical-analysis use to decide the trend are not crystal ball that perfectly predict the future. But, our target with using the technical-analysis is to bring us to the point where all the opened positions on a specific currency have been prophet closed. Therefore, we are limited using it just because the Algorithmic-Trading program has just been exited and the currency-pair has also trended in an either sides of a direction.
What Is a Trend ? What exactly is this trend that the investor wants to ride to make money ?
A rising trend, or uptrend, occurs when prices reach higher peaks and higher troughs. A declining trend, or downtrend, is the opposite – when prices reach lower troughs and lower peaks. A sideways, or flat trend occurs when prices trade in a range without significant upward or downward movement.
From above we have understood that a trend must be recognized early and be long enough for the investor to be profitable.
There are many ways to identify trends. A one most popular, which many analyst are using the moving averages to smooth out the shorter and smaller trends within the trend of interest. An another popular method of identifying trends is to look at a graph of prices for extreme points (Tops, Bottoms and double Bottoms).
In summary, the basic ways to make money using technical methods are:
1. “The tend is your friend” – means trade with the trend.
2. Do not lose – Control capital risk of loss.
As we will see when we study the history of technical-analysis, the interest in United-States dates back over 150 years, when Charles H.Dow began to write newsletters that later turned into the Wall Street Journal and developed the various Dow averages to measure the stock market. Since that time, much has been written about technical-analysis.
For a further reading, today, there are several periodicals, such as the “Technical Analysis of Stock and Commodities” and the “Journal of Technical Analysis”, which are devoted to study and research this important subject.
In addition, you may also like to read an interesting article about this subject written by Andreas F. Clenow, CMT.