Technical analysis is the study of market dynamics.
For example, it can be forex analytics and analysis of stocks or futures, as well as much more. The analysis is carried out mainly through charts, and aims to predict the upcoming direction of price changes. The very same technical analysis consists of studying the price dynamics of the market by analyzing such patterns in the changes of three different market factors such as price, volume and analysis of open interest, which is used in the study of the market for futures contracts.
The history of modern technical analysis begins around the turn of the century, and has its roots in the theory of Charles Dow. Deriving from his theory, technical analysis has absorbed some of the principles and concepts that we will list below.
It is the prices that will be considered the most important for the technical analysis of Forex, and the analysis of changes in other factors is carried out only to confirm the correctness in the direction of movement of the analyzed prices. And, of course, in this technical theory, however, as elsewhere, the basic postulates have been created.
The first is the postulate called “Market movement takes into account everything”.
This postulate is the most important in technical analysis – it is his understanding that is necessary for a full-fledged perception of various methods of analysis. The essence of technical analysis is that any of the factors affecting the price of securities – an economic factor, political, psychological, all of them are taken into account in advance and displayed on the price chart. In other words, with any price change, there will be a corresponding change in all external factors. And the main consequence of this premise is the need for very careful monitoring, as well as the study of price dynamics. In the process of analyzing price charts and many different additional indicators, a technical analyst will be able to achieve exactly what the market will independently indicate to him the most likely direction of its movement. It is with this basic postulate thatForex technical analysis and it is a fundamental postulate in this concept.
But this premise conflicts with fundamental analysis. There, the main attention is paid to the study of the factors, after the analysis, which ultimately determine the forecasts regarding the movement of the Forex market. For example, if demand exceeds supply, then the fundamental analyst will be able to conclude that prices will rise. And the technical analyst, in turn, will draw the same conclusion “on the contrary” – the price rises, which means that demand exceeds supply.
The second postulate is called “Prices move in a direction”.
This assumption became the basis for the creation of various methods of technical analysis, because a market subject to market trends is comparable to a chaotic market that can be analyzed. Also, based on the fact that price movements are subject to market trends, two consequences occur. The implication of the first is that the work trend is likely to develop further. It will not turn into its own opposite, that is, this consequence excludes the chaotic, disordered movement of the market. The second consequence will be that the current tendency can develop only until the moment when the opposite movement begins.
The third postulate is “History repeats itself”.
Market dynamics research and, in particular, technical analysis, are very closely related to the detailed study of human psychology. For example, the same graphical price patterns that have been identified and classified over the past hundred years reflect the most important features of the current psychological state of the market. And, above all, they indicate what kind of sentiment is on the market today.
It is also worth noting that if in the past all these models worked, then there is every reason to assume that they will not stop working in the future, since these models are based on human psychology, and the psychology of the masses does not change even over the years. You can reformulate the last postulate called “history repeats itself” in slightly different words: the key to understanding the future is hidden in the study of the past.
The very same technical analysis is depicted in the form of charts, which depict price movement. This type of analysis is quite simple in comparison, for example, with fundamental analysis. Technical analysis is used mainly by novice investors and sometimes by average ones.
We suggest you consider the principles of technical analysis of a specific market – Forex. With the help of technical analysis on the Forex market, it is possible to predict the movements of the rates of various currencies, based on the research of information about the past rates, as well as the volumes of trading. This type of analysis is based on drawing up charts and formulas, with the help of which the trends in the movement of rates are tracked, and also good opportunities for selling and buying a particular currency are recognized against the general background of market movements. It is based on the analysis of time series of prices, as well as their charts, which are called “charts”.
In technical analysis, it is important to be sure that everything on the market has been taken into account: all the events that have occurred, as well as all the expectations of the participants in this market. The price movement here is presented as a unifying vector of all other factors, and even those that have not been studied at the moment, but already influence the dynamics of price development.
Also, depending on the availability of a different time range, it is possible to use both daily technical analysis and analysis on a weekly or monthly basis.
To conduct a correct analysis of currency pairs on the Forex market, you first of all need to understand what the essence of technical analysis is.
For example, a trader, when buying euros, must necessarily follow the fluctuations of the EUR / USD quote. Also, minute-by-minute changes in currency rates suggest that the trader must react immediately.
Forex market advancement forecast, carried out using technical analysis, should be an obligatory first component in the behavior strategy of Forex market participants. Based on the forecast, the final decision is made whether to open a position and how much money should be invested in this position.
You should also know that technical analysis is divided into two methods: the first is graphical; the second is mathematical.
In addition, technical analysis does not aim to consider the reasons why prices change their direction, but only takes into account the fact that prices are already moving in a particular direction. Here it is worth adhering to the principle that income can be obtained in any market, it is only necessary to correctly recognize the trend, and, in turn, close a trading position in a timely manner.
Technical analysis can be safely called one of the most powerful tools used to predict the current state of the Forex market.
The main strength of technical analysis can be called its flexibility in relation to many underlying instruments, as well as markets and different periods of time. Any Forex trader who is interested in several currencies, but specializing at the moment in one of them, can easily use the skills acquired in technical analysis to trade any other currency.
And today, with the development of various modern information technologies, there is a wide variety of applications designed for these purposes. Today it is quite simple to analyze the market – you just need to load the initial data into a special program, for example, on the Admiral Markets website, and you will have a fairly clear picture of the situation in the modern Forex market.
Before you enter the market, it is technical analysis that can provide you with a variety of useful trading signals.
