You might look at the stock prices at the bottom of your television screen or, if you are trading currencies in the forex market, you might look at the exchange rates go up and down your computer screen. Prices move and you wonder whether their behaviour means something. Could the market be sending out signals that you can use to make your decisions? How, exactly, are you going to study the market?
For anybody to make money from the market, they must have a way of studying it. There are predominantly two approaches: fundamental and technical. Fundamental analysis focuses on value but this is the subject of another article. Technical analysis, on the other hand, focuses on price and its movement.
The movement of price has the following properties which traders can study to aid in their decisions:
1. Trend — its persistence to move in one direction,
2. Volatility — the magnitude of its fluctuations on a periodic basis,
3. Momentum — the rate of its acceleration and deceleration,
4. Cycle — its tendency to move in cyclical patterns, most especially in the futures market,
5. Market Strength — the number of transactions supporting its movements,
6. Support and Resistance — its tendency to rise or fall to a certain level and then reverse, repeatedly.
Analysts, using the technical approach of analysing the markets, have developed their own set of indicators, different to those used by fundamental analysts. These indicators are used to measure the properties of price movement. Fortunately for modern-day traders like you, you do not have to devise your own tools. You just need to learn how they work and how to use them.