Forecasting Financial Markets to Bring Fortune Essays

Decent Essays

As long as financial markets have existed, people have tried to forecast them, in the hope that good forecasts would bring them great fortunes. In financial practice it is not the question whether it is possible to forecast, but how the future path of a financial time series can be forecasted. Among practitioners fundamental and technical analysis are techniques developed in financial practice according to which guidelines financial time series should and could be forecasted. They are intended to give advice on what and when to buy or sell.1.1 What is Technical Analysis
The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis …show more content…

A stock price chart shows trends, momentum and patterns that repeat over time, not exactly the same way but similar. A chart is a mirror of the mood of the crowd and not of the fundamental factors. Thus, technical analysis is the analysis of human mass psychology.
The field of technical analysis is based on three assumptions:
1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.
1. The Market Discounts Everything-
A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors.
2. Price Moves in Trends-
In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it.
3. History Tends To Repeat Itself-
Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement.
1.2 Need for Technical Analysis
Risk is there in every business and proper risk management is road to success for any business. Equity trading is

Get Access