Analysis is defined as: Detailed examination of anything in order to understand more about it. In the financial market, analysis refers to a detailed study of the price movement of an asset and its intrinsic value.
anticipationon the other side, Refers to the process of predicting the future of something. In finance, forecasting involves predicting the future price of an asset such as a stock, currency pair, and commodity.
In this article we will look at Quote from Nicolas Darvaswho said.
“I believe in analysis, not prediction. “
analysis vs prediction
Analysis is the process of making an in-depth study of an asset. As we will explain below, there are many methods of analysis in the finance market.
Prediction is the anticipation of what will happen in the future. Most traders use analysis to predict the future movements of an asset.
Who is Nicolas Darvas?
Nicolas Darvas was a Self-taught dancer, author and investor. He was born in 1920 and died in 1977 and achieved great success in the financial market. His success is clear evidence of that You do not need to have an Ivy League education Or many years of experience to succeed in the financial market.
Darvas is famous for his book, How I made $2,000,000 in the stock market. He was also an author Anatomy of success. These books have sold millions of copies in the past few decades and have some of the most cited books in the industry.
Darvas was originally a dancer who toured several countries. His love for the financial market grew after reading several books from it ABC Investments, your investments, And the You can make money in the stock market.
Do you need inspiration? Here are other evergreen trading books to read.
Transition to trading
Nikola’s career is further proof of this Anyone can move from other professions to become a good trader.
At DTTW™, we have seen thousands of people with no trading experience become highly successful traders. Some of these people have grown up They became floor owners themselves.
Most of these people succeed by focusing on learning and improving themselves. Fortunately, there are many resources available to help you become a better trader.
As is the quote, “I believe in analysis, not prediction,” of most of these traders Focus on an in-depth analysis And not just an expectation.
Related “ How to start day trading (see if it’s right for you)
Why is trading analysis important?
Trading analysis refers to the process of conducting an in-depth study or analysis Examination of financial assets Like a stock, commodity or index. The goal is to understand past price action and then use this information to predict the future.
Related “ How to do a financial stock analysis
Trading analysis is important for several reasons. Each of these points are essential if you want to have a long trading career and want to trade the markets at a higher level than what you would do as a hobby.
First, it plays an important role in Separate trading from gambling. When you analyze a stock or currency pair well, you are in a good position to make informed decisions. For example, when you buy a stock after it moves above the VWAP, you can Justify the reason to do that.
Secondly, it is important because it will help you Transition from a beginner to a professional Trade in a short time. People who are good at analyzing can become better traders and investors.
Third, it helps you Avoid making common mistakes That many traders make like overconfidence and excessive trading.
Finally, a good analysis will help Manage your risks well. As we have covered before, risk management is one of the most important aspects of day trading.
Related “ “The danger comes from not knowing what you’re doing.”
Types of analysis in trading
There are different types of analysis in the financial market. Some of the best analysis methods are:
This is a type of analysis where a trader He looks at the chart and then identifies patterns. By looking at these patterns, the trader can predict whether the asset will continue to rise or whether it will resume the downtrend.
Technical analysis consists of two main parts: Technical indicators and price action analysis. Indicators are tools created using mathematical formulas that use historical data to predict future movements.
Some of the most popular technical indicators used in analysis are: Moving averagesAnd the Bollinger Bandsand the relative strength index (RSI) among others.
On the other hand, price action analysis is a type of analysis that involves Consider chart patterns Then use the information to predict future trends. These styles are divided into continuity and reflection patterns.
Examples of continuation patterns are: Up and down flag And the ups and downs Peanuts. Reversal patterns include the wedge, double top, and head and shoulders pattern.
This is a type of analysis that traders look at The main factors affecting the price of an asset. The goal is Determine the intrinsic value of the asset And the the key stimuli move them.
for example, In stock, you can search In the main factors such as the latest newsletterAnd the precise environment f profits. in forex Trading, you can look at the key factors such as Economic data and central bank decisions.
Most successful traders combine fundamental and technical analysis when making their trading decisions
The analysis type that you decided to use It is affected by many things. For example, it is affected by the type of trader you are.
Speculators do not find fundamental analysis useful because they are only interested in chart movements. Long-term investors focus mostly on the fundamentals of the asset.
Second, it depends The asset you are trading. Some of the most popular assets in the market are stocks, currencies, indices and commodities. In some cases, stock analysis is usually different from forex analysis.
Related “ Best time for day trading? It also depends on the assets!
third, Time frame Trading can be useful when making decisions in analysis. For example, if you want to buy an asset and hold it for a long time, it makes no sense to look at a 15-minute chart.
The most popular Nicholas Darvas quote recommends focusing on analysis, not prediction. In this article, we looked at the difference between the two and why you should focus on analysis.
We have also set Some of the best methods for analysis Stocks and commodities.