Technical analysis is the study of historical changes in price action in order to recognize predictable patterns that occur. Technical analysis is heavily dependent on charting and identifying chart formations. By analyzing chart formations and the patterns that follow them, technical analysts try to work out a trading system that has a high probability of making profitable trades when certain patterns appear in a price action chart.
Technical analysis is all about probability. A technical analyst identifies a chart formation that has a high frequency, measures the historical outcomes that follow the formation and then places the trade that has the highest probability of profit. Although the premise is simple, there are hundreds of technical indicators to choose from. Technical indicators and technical trading systems are always being tweaked as more historical data is added for the trader to analyze.
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