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Why Technical Analysis is important for a Trader?

Some professional investors buy stocks only when they are on sale – they do not care about analysts’ recommendations and they never get caught up in market hype. These smart investors buy when everyone else has given up and sold their shares. Frequently, a month or two later, a previously beaten up stock will rebound and often becomes “loved” again on Wall Street. At this point, analysts will hop on board and upgrade the stock to a “strong buy” or raise their target estimates. As the stock moves up, it is common to see new (inexperienced) investors rush in and buy it, just as it is about to make new highs. At this point, the professional investor will sell his shares and go bargain hunting again.

Every technical analyst knows the importance of charts and indicators. But if these were all it took to make profitable trading decisions, everyone would be a winner in the markets. While it is possible to detect buy and sell levels with most indicators, the real trick is to detect them before everybody else does.

"The trend is your friend" is a frequently quoted motto of technical analysis. However, the “trend is your friend” slogan applies only in the middle of a trend or when a new trend is just starting, but certainly not toward its end, when the trend is about to end (and become prone to sudden reversals). Technical analysis can help (professional) traders determine the beginning of new trends and locate those points, where the market is about to reverse.

We have always maintained that every trader should be familiar with at least one type of technical analysis or follow the advice of a reputable trading advisory service (one that bases its outlook on technical analysis). It is an even better strategy to arm oneself with several different types of technical analysis tools, even if this means involving a third party service. You can substantially reduce your trading risk by proceeding in this fashion. For instance, say you are adept at candlestick analysis, but not well acquainted with the principles of volume analysis. In such a situation, it might make sense to trade only those buy and sell signals for which you receive dual confirmation - i.e., confirmatory signals from both candlestick analysis and volume-based analysis. Many professional traders look for confirmation from several trading indicators or systems to increase their chances of making successful trades.

In conclusion, technical analysis is important because it supports you in:

• Getting a good grasp on the current market situation (over the long-, mid-, and short-term);
   
• Establishing the points at which a previous trend grows old and becomes prone to (sudden) reversals;
   
• Determining the best entry and exit points for each trade;
   
• Avoiding emotional trading;
   
• Preventing large losses and thus increasing profits.

Remember, without the tools of technical analysis, traders are often akin to gamblers, who simply play the game based on emotion. If you still doubt the importance of technical analysis, just ask yourself why large institutional investors (e.g., banks, mutual funds, governments) are willing to pay hundreds of thousands (in some cases even millions) of dollars for professional stock market technical analysis services.

That's why we are doing our part:

We provide investors with volume-based technical analysis, something that was previously available only to institutional traders.

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