What is Technical Analysis?

technical analystSo if you’re not into macroeconomic and financial analysis and you think fundamental analysis is too hard for you, well don’t get upset Technical Analysis may be this you’ve been searching. The only things you need to have are price reading skills and discipline and your main tool will be price movement itself. Technical analysis is the method used by traders to analyze price movement on a chart of a particular Forex currency pair or other market and to make a prediction where the price will be in the future. The primary reason that we traders use Technical Analysis or T.A. for shorter, is to make predictions about future price movement based on past price movement.

All technical analysts share a common believe that all you need is visualized in the chart, because the chart is just the visual representation of all market players’ actions. Well if you believe that all is calculated in the price and you have no reason to think that you need something more beside just the pure price movement. I’m not saying that fundamental are something bad and news or economic events are not reliable, but I just don’t need them we technical don’t rely on them.

Technical analysis is a analysis of previous price action patterns in an attempt to determine a profitable outcome of future price movement. People who study technical analysis are known as Technical Analysts, or simply just Technicians. These specialists don’t matter themselves with the intrinsic value of one currency compared to another, but alternatively concentrate entirely on the study of market movements.

Technical analysts look for patterns within the chart that have a tendency to repeat themselves; they do this to develop their trading advantage from. The underlying logic here’s that since most price movement is driven by people, certain patterns will repeat themselves in the market as people tend to be repetitive within their emotion and interaction with the market.

support and resistance

Technical analysis also encompasses learning to analyze the market structure; find trends, support and resistance levels and generally learn to ‘read’ the ebbs and flows of a market. There’s definitely discretion involved here and i’ll be the first person to inform you that T.A. is more of the art than a science. That said, it’s something will get more comfortable with and better at given time and exercise. Many technical analyst use price action, which is simply a derivative or off-shoot of ‘traditional T.A.”, except with more clarity and much more concise tactics that don’t involve confusing forex indicators or things like Elliot Wave Theory which are far too messy and open to interpretation for me to believe they’re worth trading or teaching.

Most traders instantaneously think of a price chart like the one above when someone mentions the word “technical analysis”. Price charts give to us an incredible quantity of helpful information that paints an entire picture of the market’s historical and current supply and demand situation, along with the price levels the market participants have deemed the most important. As technical analysts we have to pay special attention to these price levels as price will have a tendency to respect them again and again. Price charts are also an expression of most market participants’ beliefs about the market and market variables, so by concentrating your analysis and trading on the market’s price chart you are able to streamline your trading and also at the same time frame analyze the result of everything that contributes towards the price movement of the market.

Tags: , ,

Shares