This refers to a study of the market itself rather than the external factors that affect the supply of and demand for a given currency or commodity. The basic assumption underlying all technical analysis is that by studying statistics generated by the market, it is possible to come to meaningful conclusions about future prices; that is, the way the market behaved yesterday may indicate how prices will behave today. The Technician works with chats, moving averages, a volume of trading and open interest. Every technical approach, from the simplest to the most complex, falls into one of the four broad areas of technical analysis; the pattern on price charts, trend-following methods, characters of the market analysis and structural theories.
Fundamentalists believe that the price of a commodity must ultimately reflect the equilibrium point of all the combined forces of supply and demand. In financial markets, factors such as taxes, government spending, interest rates, money supply, unemployment, international trade imbalances, and politics affect the demand and supply for currencies commodities and stocks.
Irrespective of which analysis you use, you must overcome the threats of greed, hope, and fear. It means controlling the desire to stray from a sound method to “something new” during times of temporary adversity. You should follow the indications from sound methods, even though they may contradict what everyone else is saying.
Before establishing a new position strategic profit objectives and risk limits must be set. Entering the right orders assures that a carefully prepared plan will not be replaced by impulse during the heat of a trading session. A satisfactory profit that was expected, achieved, and then lost in the effort to try for more, can be disappointing. A reasonable small, planned loss that is replaced by an unplanned loss can be demoralizing. It is better to accumulate money slowly than to lose one’s trading capital quickly. We have found that the unexpected is more likely to be costly, rather than profitable.
Anticipate the timing of currency and enter the market to establish positions near key support and resistance levels. We are convinced that timing represents the ultimate difference between profit and loss in trading. When to buy and sell is more important than what to buy and sell.