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There are two types of ways to analysis the price of a stock,
fundamental analysis, and technical analysis. Fundamental analysis is
used to gauge the price of a stock based on the fundamental attributes
of the stock, such as price/earnings ratio, Return on invest, and
associated economic statistics.
Technical analysis deals more with the psychological component of
trading a stock, and is influenced for the most part on emotionalism.
The technical analyst is seeking to answer the question "how are
other traders viewing this stock, and how will that effect the price
in the immediate future".
As you will see, the candlestick chart is the most effective way to
gauge the sentiments of other traders.
The History of Candlestick Charts
The Japanese were the first to use technical analysis to trade one
of the world's first rice futures markets in the 1600s. A Japanese man
by the name of Homma who traded the futures markets in the 1700s
discovered that although there was link between supply and demand of
the rice, the markets were also strongly influenced by the emotions of
the traders.
Homma realized that he could benefit from understanding the
emotions to help predict the future prices. He understood that there
could be a vast difference between value and price of rice.
This difference between value and price is as valid today with
stocks, as it was with rice in Japan centuries ago.
The principles established by Homma in measuring market emotions in
a stock are the basis for the Candlestick Chart analysis, which we
will present in this seminar.
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