If you decided to enter the capital market , you already know that you need to spend a lot of time studying to make the best decisions. After all, the objective is to leverage gains from investments and other operations. And part of that work involves graphical analysis .
It is precisely her that we are going to talk about in this article. Want to know what it’s about, how it can be done and why it’s so important? Check out the answers to these and other questions right now!
Contents [ hide ]
- 1 What is graphical analysis?
- 2 Why is graphical analysis important for investment analysis?
- 3 How did this technique come about?
- 4 What are the foundations of this analysis?
- 1The market discounts everything
- 2Trend-based price movements
- 3Repetition as analysis pattern
- 5 What are the differences between technical and fundamental analysis?
- 6 What are the most common types of graphics?
- 7 Why do some traders prefer this technique?
1. What is graphical analysis?
Graphical analysis is an analysis that uses charts with the history of certain assets . Combined with the moves made by those who invest, decisions are reached regarding the purchase and sale of shares. With that, we can say that it is directly linked to the law of supply and demand .
We can say that it is very close to technical analysis, both of which can be used simultaneously by those who invest and speculate in the market. The idea is to use mathematical and statistical concepts to assess the flow that a given asset has.
In addition, graphical — and technical — analysis helps to understand the price behavior that the asset exhibits over time. In short, it’s a feature that helps you identify patterns and predict trends .
From there, it is possible to assess whether an asset has a stronger or weaker buy and sell perspective. Decisions are taken quickly as profits and losses occur in the market.
2. Why is graphical analysis important for investment analysis?
It is through graphical analysis that investors and speculators are able to make decisions about an asset . This goes both for buying and selling and for conservation.
This analysis helps to understand how an asset behaves in the market and how people who invest react to it. It is, therefore, a great ally of those who want to carry out operations in the market — especially short-term ones.
3. How did this technique come about?
Technical analysis was developed by Charles Dow. The theory created by him supports the idea that the market repeats some behaviors over time . From there, it is possible to create flow and price estimates.
The idea was further developed, based on contributions from experts and the inclusion of new elements in the analysis. Because of this, we have reached a point where there is a great diversity of patterns and images to be followed when analyzing graphics.
4. What are the foundations of this analysis?
To follow the graphical analysis, it is essential to know the fundamentals that govern it. Below, we explain each of them in more detail.
the market discounts everything
The basis of the technical (graphical) analysis states that asset prices have already discounted some factors. Among them are market logic, company fundamentals and the macroeconomic scenario.
So, it can be said that this type of analysis does not take much into account the news that emerges on a daily basis. After all, situations like these are already built into prices. Therefore, it is the behavior of the asset — and its change in value — that provides the necessary information.
Trend-based price movements
One of the theory’s premises is that assets have repetitive behavior throughout history. Following this logic, it is always natural for prices to follow a past trend —rather than taking an entirely different course.
From these variations, graphical analysis can help make profits regardless of the rally or the rout. This attempt to make gains is what is called in the market to trade short and long.
Repetition as analysis pattern
This is the basis of the theory: history tends to repeat itself over time. It is precisely this nature that helps analysts try to predict market fluctuations and, consequently, profit from them.
5. What are the differences between technical and fundamental analysis?
It’s natural for people to feel a little confused when they start investing. There is so much information to be absorbed that it is normal that many questions arise, especially about what type of analysis should be followed.
Technical analysis studies the movement of asset prices in the past . Based on this, we try to predict the ups and downs of assets in the short term. Already fundamental analysis focuses on the financial statements of the organizations. The idea is to identify whether they have good results and growth prospects.
So we can say that technical analysis is more aimed at those who want to trade in a short period of time. This is the case of day trade and swing trade . On the other hand, the fundamentalist is suitable for those who want to invest for the long term , which is called buy and hold .
6. What are the most common types of graphics?
You can follow a series of different charts when doing your analyses. Among them are:
- line — this is a line that indicates the closing amounts of a certain asset;
- bar — is a variation of the line graph. However, in this case, the projections presented are different;
- Renko — are blocks that indicate the price changes of a particular asset. In this case, the time factor is not considered;
- candles — is one of the most popular charts, as they bring a lot of information in one place. It shows the behavior of an asset over time — similar to Renko.
7. Why do some traders prefer this technique?
Analyzing organizational fundamentals are important for long-term investors. In a market where there is speculation, as in the case of traders , it is more important to understand the supply and demand for an asset . The same goes for price variations.
As decisions need to be made within hours or days, it is more important to try to identify the trend of investor reactions. The graphical analysis is a great resource for those wishing to conduct operations day trade or swing trade . After all, it helps to predict asset trends.
As the objective is to profit from the purchase and sale, knowing if a company has good results is not the most important in this case. If you liked the content, enjoy the visit to better understand what you need to do to start investing.
