Before trading in the market, it is very important to do a market analysis. For example, if you want to sell XAU/USD, you need to check the chart before entering the trade:
What is the market trend? What is the direction of the market? Is the market trending upwards, downwards, or sideways? What is the rate of inflation or deflation on a daily or monthly basis? All these factors are checked through analysis.
There are three types of analysis:
Technical Analysis:
Fundamental Analysis:
Sentimental Analysis:
Technical Analysis
Technical analysis is the study of market action, primarily through the use of charts, to forecast future price trends. Technicians (also known as quantitative analysts or chartists) usually look at price, volume, and psychological indicators over time. They are looking for trends and patterns in the data that indicate future price movements.
Strengths and Weaknesses of Technical Analysis
“Strength and Weakness of Technical Analysis Strengths. One of the key advantages of technical analysis is its objective nature. Technical indicators and chart patterns provide clear signals and rules for entering and exiting trades. Traders can make informed decisions based on specific price levels, trends, or patterns without relying on subjective judgments or emotions.
Advantages:
- Objective decision making
- Market efficiency
- Timing entry and exit points
- Wide range of tools
Weaknesses:
The usual limitation that traders face in technical analysis is the mixed signals they receive from different technical indicators. One indicator will suggest buying, whereas the other indicator may suggest selling.
Disadvantages:
- Limited fundamental analysis
- Interpretation challenges
- Historical analysis
- False signals and whipsaws
