Technical analysis is one of the basic tools used in analyzing financial markets. This type of analysis relies on studying historical data of price movements and trading volume to help investors and traders make informed decisions about buying and selling. This is done by using a set of tools and indicators that help predict future price trends.
Principles of technical analysis
1. Price reflects everything: Technical analysis assumes that all available information about the market is already reflected in the price.
2. Prices move in trends: Technical analysts believe that prices tend to move in a certain direction (up, down, sideways), and that it is possible to profit from following these trends.
3. History repeats itself: Technical analysis relies on recurring patterns in price movement as a result of traders’ psychology.
Basic Tools in Technical Analysis
1. Charts:
Japanese candles.
Columns.
Lines.
2. Technical indicators:
Moving Averages.
Relative Strength Index (RSI).
MACD indicator.
Bollinger Bands Indicator.
3. Support and Resistance: Identifying the levels at which the price stops rising (resistance) or falling (support).
4. Artistic patterns: such as flags, stakes, and heads and shoulders.
Advantages of technical analysis
Ease of application compared to fundamental analysis
Helps to identify entry and exit points effectively.
It can be used in all financial markets (stocks, currencies, commodities, cryptocurrencies).
Disadvantages of technical analysis
May be susceptible to the influences of emotion and self-expectations.
It does not take into account the economic and political factors that affect the market.
May not work well in low liquidity markets.
