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What is technical analysis, why it is needed and how to conduct it.


Technical analysis begins with the price chart and is inextricably linked to it. Even a beginner can start looking closely at the trading platform in search of patterns. Strange as it may seem, they really are there. A chart is a kind of language, akin to the one in which mathematicians communicate. A professor of any country will easily understand the parabolic images and universally recorded formulas.


It is the same with traders and analysts all over the world. They have developed their own language, through which they "read" trading signals and make trades depending on their trading strategy. This is the technical analysis.


Definition.

Technical analysis is an attempt to calculate the market. It is based on mathematical processing of previous price values and on them to make a forecast of the future movement.


Formulas, algorithms, indicators and levels - in general, objects that in one way or another interpret the quotes chart - help traders to do this. In this way, it turns from a chaotic set of prices into a logically built structure. The center of this structure is still the man and his psychology.


How did the technical analysis appear?

Both the creation and the development of technical analysis are people behind it. It all started with Charles Dow, one of the developers of the Dow Jones index. So, he identified three trends in price movement: upward, downward and flat. Also in the moneybox of his discoveries - the theory of confirmation and denial of price movement - indicators. He was the first to mention how important it is to track the volume of transactions in the market and passed on to his colleagues the methods of forecasting.


In addition, a significant contribution to the development of technical indicators was made by Richard Shabecker, the youngest editor of the financial section of Forbes magazine. He also opened the eyes of the trader community to the importance of psychology in trading. Even when performing this type of analysis, such as technical.

The purpose of technical analysis

Conducting technical analysis of forex or any other market means to determine the current trend and confirm your forecasts for further price movements using various graphical tools. As a result of these manipulations, it means to determine a successful moment for making a deal.


Thus, the purpose of technical analysis is to see the justification for opening a position on the chart itself.


Basics of technical analysis


It is important to understand how this particular quote is formed at a given moment. The adherents of technical analysis say that all the news, all tug-of-war offers, all the regulators' comments and traders' expectations are all embedded in the current price. It is necessary to understand it, and with this understanding to enter the market.

The price movement is subject to the trends

The price changes not chaotically, but for certain reasons. The more obvious they are, the more visible they are to traders, investors and regulators. All of them are human beings, so they are looking for opportunities to make deals more profitable. So while there is supply, they will buy, and while there is demand, they will sell. This is how trends are formed in the market.

The history of price dynamics repeats itself.

Probably, gravitation or pschological patterns of human behavior are to blame for it. Conditionally, if everything is bad, traders sell. If everything is good, they buy. There is also a feedback loop: the price rises after a signal to buy, which is read by all traders. However, the modern world has started to change so rapidly that lately new market habits have been increasingly formed, which are extremely curious to observe.

Technical analysis can be applied to any type of asset

There are more "technical" assets, and there are less "technical" assets, especially in the forex market. However, they all form trends, and their price tries to find support on the downhill and resistance (boiling point) on the uphill.


Technical or fundamental analysis

When trying to choose between two types of analysis, choose both. There are irreplaceable moments in one, and vital moments in the other. It's silly to sit down and trade without checking the Economic Calendar news release. Just as difficult as it is to make a decision to open a trade without understanding visually whether it's "expensive" now or "cheap". To do this, you need to make a comparison: impose levels and indicators, which we will talk about in this article and other materials on the trading website.


Types of charts

Forex market instrument prices change every second. As soon as a new quote arrives in the trading platform, it forms the basis for the chart. It is more convenient to observe and analyze the changes.


Line Chart

This type is suitable only for superficial analysis of forex price movements. It simply connects quotes coming to the platform with a broken line and allows to see the movement as a whole. Global, without details.


Candlestick chart

Each candlestick of this type on the forex chart is composed of the quotes of an asset for a certain period of time: the trader sets it in the chart settings independently.

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