Technical analysis is one of the main methods used in trading to understand future price movements based on past market data, particularly prices and trading volumes. This analysis is based on the hypothesis that "the market discounts everything," and that prices move in trends that can be predicted to varying degrees. Technical analysis can be divided into three main schools:
1. School of Traditional Charting
This school focuses on studying the patterns that form on charts, such as head and shoulders, triangles, and channels. Analysts in this school believe that the repetition of these patterns reflects a psychological behavior of market participants that can be exploited to predict the next move.
2. School of Technical Indicators
This school relies on the use of mathematical tools derived from price and trading volume, such as moving averages, the Relative Strength Index (RSI), and the MACD. These indicators allow the analyst to assess momentum, trend, and market saturation levels.
3. School of Price Action
This approach focuses on reading the price movement itself without relying on indicators. Analysts here depend on candlestick patterns and support and resistance levels to understand the intentions of buyers and sellers. This method is considered one of the most straightforward and quick-reacting methods.
