Technical Analysis (TA)
What is technical analysis?
Technical Analysis (TA) - one of the types of graphical and mathematical forecasting of the future price of a stock exchange instrument of various types financial markets. At its core, technical analysis relies on price and its derivatives - charts, indicators, etc.
What are the basic rules of technical analysis?
When using technical analysis traders and investors are guided by the regularities in the market situation, which are reflected in the price and on the trading chart. Hence we have three basic rules of TA:
1. Prices take everything into account;
2. Prices move in an orderly fashion and obey trends;
3. The market is cyclical and prone to repetition.
What are the goals of technical analysis on ?
The purpose of TA is to forecast changes in price trends (trends) and determine the point of opening a buy or sell position. Several methods are used in technical analysis for this purpose.
What methods are used in technical analysis?
Methods of technical analysis are divided into several conventional categories:
- Graphical method
The graphical method is based on drawing graphical elements on the price chart, based on which further price dynamics is forecasted. These elements are used to display price trends, support and resistance levels, technical analysis figures.
- Mathematical methods
The mathematical method is based on the algorithmic interpretation of the available data, the results of which are technical indicators. Technical indicators became widespread with the development of computer technologies for trading: automated trading systems, indicators, scripts and programs that greatly facilitate the process of predicting price movements began to appear.
- Structural methods
The principle of the structural method is that any chart of an exchange instrument has repeating structures. An example of practical application of the structural method is Elliott wave theory.
- Probabilistic method
The method is based on the principle of probability theory, on the basis of which a forecast of future price movement is made with the help of historical data.
In fact, there are quite a lot of methods and sub-methods in technical analysis. They are almost always used in combination.
What is the advantage of TA on ?
- Technical analysis is characterized by simplicity and does not require statistical skills and economic knowledge necessary for fundamental analysis.
- TA methods can be applied not only in the foreign exchange market, but in any financial market.
- Technical analysis is available to any trader, as the necessary data (quotes, historical data, trading terminal and so on) are provided by brokers absolutely free of charge and are available not only on PCs, but also on tablets and smartphones.