Technical analysis has lots of benefits over fundamental analysis.When you use the trading software like Bitcoin code robot that uses technical analysis to generate trading signals you will be able to understand the benefits of trading using charts.
The biggest reason why technical charts are used in trading is to make use of the opportunity cost. Most traders work with funds that are finite and since fundamental analysts work, with metrics and data it does not give any time limit by which the profit can be realized. This ties up the trading capital completely.
For example, let us assume that a company named A is a good buy as per the analysts who give stock recommendations as per fundamentals. This is because the company A is becoming sectors, a major player. However, the analysts will not tell you when the impact will be seen and when the stock will start to move. It could be a day, a week or even months. Sometimes the stock starts to move only after a few years. This ties up all your money for an unknown time and in turn, you miss out on some other opportunities.
Technical analysis is completely different than this. It only signals to you when the criteria are met for the stock to start moving. This means that your capital is used in only those trades that have met the criteria and the catalysts have triggered a move in it. This lets you invest your funds much better.
Technical analysts work on some basic assumptions. This is applicable to securities that are forced by demand and supply. The assumptions that are used in the technical analysis are:
- Liquidity -this is nothing but volume. The stocks that are traded heavily can be traded easily and quickly. Those stocks that are not traded heavily can be very difficult to buy or sell. Technical analysis is suited only for the stocks with high volume.
- Price change –price change happens because of dividends and splits but affects the chart and in such cases, technical analysis cannot be applied.
- Major news- extreme news or other events cannot be predicted when using technical analysis. These include unexpected news like a terrorist event or a CEO’s death. In such cases, technical analysts cannot take any trade and will have to wait for the impact of the news on the price to settle down.
It is, however, important to understand that the technical analysis method of generating trading signals is not totally accurate but it is a great tool that when used with other analysis can help to increase the probability of profiting from the market.