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Technical Analysis For Futures Traders!

One of the great books on technical analysis that I’ve thumb through throughout the years is "Technical Analysis of The Financial Markets" by John Murphy. I believe this is one of the books that is a must read.

If you can read it from cover to cover that’s great, but I use it more as a reference guide, skipping over topics that I new to brush up on throughout the years. However you decide to read it, I would highly suggest you pick up your copy of John Murphy’s book!

In the very first chapter, the book describes the "Philosophy Of Technical Analysis" which I think is dead on. It first defines what technical analysis is and explains what are the distinct differences when comparing technical analysis versus fundamental analysis.

It states "Technical analysis is the study of market action, primarily through the use of price charts for the purpose of forecasting futures prices". For technical analysis followers this statement is 100% true.

Furthermore, it takes market action and visually shows how prices are reacting to supply and demand news as it is digested by the markets. Price action also shows how the market views that news and how it reacts to it by either buying the prices higher or selling the prices lower.

Price action is truly a real time valuation of each futures contract as supply and demand news comes in real time.

Chapter one also describes how fundamental analysis differs from technical analysis by stating that "while technical analysis concentrates on the study of market action, fundamental analysis focuses on the economic forces of supply and demand that cause prices to fluctuate or stay the same".

So technical analysis studies how prices react to supply and demand issues, fundamental analysis provides reports and other news and how this news now values that particular commodity.

I and many other traders know that these reports on supply and demand create, change and start new trends, it is tough to dissect this news on how to play the futures market.

Technical analysis at least gives us price data to show us if prices are actually making new highs or news lows and at what price would be a good risk to either buy or sell that particular commodity.

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