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Technical analysis (TA) does not look at company profits or economic growth, but solely at the price trend of a security. TA has been used since the end of the 19th century and assumes that all relevant information is already contained in the price. It also assumes that prices move in trends and patterns and that trends are constant, i.e. not subject to mere chance.
The three biggest advantages of technical analysis
- It is easy to learn.
- Technical analysis works the same for every market.
- TA requires very few resources, most of which are freely available.
TA makes it relatively easy to determine the state of a market and its likely direction of movement.
A simple example:
If the market is in the lower area of an intact upward trend channel, a price rise is likely. Just looking at trends, resistances and supports as well as simple price information is often enough to allow an assessment of the market. Many brokers provide private investors with charting software with which most TA tools can be applied.
Basic knowledge is often imparted within the framework of free or low-cost webinars in which, in the best case, the current technical condition of important markets is analysed with close practical relevance. Beginners should be able to learn the basic skills of TA within a few months, provided they make the appropriate personal commitment.
How does a stock exchange work and how are traders connected to it?
But how can profits be made with short-term price fluctuations in Exness? To understand this, it is first necessary to take a look at how a stock exchange works. Stock exchanges are central trading places where supply and demand for securities meet.
Exchange participants as intermediaries
As a private investor, you cannot place an order directly in the trading system of an exchange. This is only possible via exchange participants - i.e. banks and brokers. They provide their customers (which may include private investors as well as investment companies and other institutional investors) with order masks and accept orders via the Internet. In the case of buy orders, the exchange participants also check whether there is sufficient liquidity in your custody account/ clearing account.
Low barriers to entry into online trading
Private investors can place a large number of orders per day via the Internet. Even the purchase and sale of a security within one trading day (intraday trading or day trading) is possible without any problems - provided the broker does not exclude this in his conditions. Apart from a little money, online trading thus requires nothing more than a service contract with a broker, which is concluded when a securities account is opened.
When does online trading become profitable?
Money can be earned with active stock exchange trading if a sufficiently large proportion of the transactions are concluded with a profit. These profits must first be used to cover the "operating costs" of online trading: The inevitable losses and the transaction costs. Only when the profits significantly exceed these costs does online trading become a profitable venture.
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