There are two popular ways of understanding the markets in order to make the right trades. Fundamental analysis is often considered as the more traditional and conservative approach. It requires the in-depth study of the companies behind the stocks and the countries behind the currencies. One needs to know the underlying strengths and weaknesses before taking a risk. On the other hand, proponents of technical analysis rely more heavily on the charts and the corresponding technical indicators of their behaviors. These are thought to provide clues regarding the future direction of the asset, allowing traders to buy or sell in a timely manner.

The Not So Secret Weapon of Banks and Hedge Funds

There are lots of myths surrounding the use of technical indicators when analyzing market movements. Many have the impression that this is limited to individuals who do day trading with limited success. However, the reality is that this is a widely use methodology that is present at all levels from individual day traders to the largest hedge funds. The biggest banks will have their own army of technical analysis experts who are constantly monitoring developments so that they can find opportunities as they open and move before these close down.

A Method of Analysis for All Time Frames

There are also people who think that technical indicators can only be used for short-term data. For example, a high volume trading spree for a certain stock can yield interesting data for the proponent of technical analysis. However, the same can be true for longer time frames. Indicators can still be useful for the movements of assets across many months. Traders have their preferences when it comes to the charts that they wish to use. Some will want the latest movements with the one-minute charts. Others will look into the weekly or monthly charts for context before making any decision.

Specific Indicators for Different Asset Classes

It should be emphasized that there are many types of technical indicators with each of them being suitable for certain assets. Although some are versatile enough to be useful across the board, most will require analytical savvy on the part of the trader. For example, the usual behavior of a stock may not apply in the following weeks because of an impending event in the company. There are also assets like options which are highly dependent on time. If they are almost at their expiry date, then expect a great deal of movement in their prices and trading volumes.