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To determine: The behavioral biases that involve to the success of technical trading
Introduction: Technical Analysis helps both the trader and the investor to analyze the stocks with the help of price and the volume, rather than the revenue.
Answer to Problem 1PS
The market prices or the trends in momentum are the behavioral biases that might contribute to the success of technical trading.
Explanation of Solution
Given Information:
The contributions of behavioral biases are given.
Technical analysis guides the traders with the help of past data. It is used for decision making by investors. The pattern in market prices or the trends in momentum are the behavioral biases.
A conservatism bias contributes to the adjustment of prices. The resultant from the concept of representatives based on the basis of sample data. The outcome pattern will continue in the future. When the prices overreacted, the investors take necessary corrections. Securities prices exhibit the features of an
The ways to contribute to the success of the technical analysis:
First, it is mainly influenced by the choice of framing decisions. Most of the time, when it is risky steps to decide upon the profit or loss, the choices arises arbitrarily. One may accept or reject when there may be the chances of losses or gains respectively. Some technical trading rules should be followed. With proper understanding and analyzing a better perspective on the market can be visualized.
Second, the behavioral finance theory is the reverse to the idea of incurring losses. In selling the stocks with gain it confirms the investors towards the technical trading rule. Fluctuations in the price of stock result from the mental accounting effects.
Third, due to the financial precocious stage, the higher book to market firm keeps the stock prices as low. Near the support levels, buying is the best place.
Fourth, the firms having more reputation can generate more public perception and in fetching of prices. Their aim is to gain expected profitability. In between the two averages of the combined chart, the shorter average line crosses the longer average line.
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