Chapter 5. An Overview of Markets

Chapter Objectives

After studying this chapter, you should be familiar with The market characteristics required for investors to use technical analysis The types of markets in which technical analysis can be used The differences between informed, uninformed, and liquidity market players The differences between price-weighted, market capitalization weighted, and equally weighted averages

Technical analysis is widely used in freely traded markets. In the United States and most major industrial countries, technical analysis is used in the currency, equity, fixed income, and commodity markets. Professional traders and investors, as well as individuals who are investing their own funds, use the techniques of technical analysis. An obvious use of technical analysis is to make money. Investors attempt to buy a security at a low price and sell it at a high price; technical analysis helps identify profitable buying and selling opportunities. In addition to aiding the investor with determining profitable buying and selling opportunities, technical analysis can be used to manage risk.