What is Technical analysis?
In the dynamic world of the capital market, intelligent decisions based on reliable data are very important. Technical analysis, as one of the fundamental methods of market analysis, involves analyzing price charts to identify market patterns and assists investors in making informed decisions based on available information.
In this article, we will explore the fundamentals of technical design, its basic principles, and the various methods used to analyze price charts. Training in technical analysis, comparing it with fundamental analysis, types of technical analysis, and software will be the topics covered in this article.
Technical analysis training
Technical analysis training involves studying and analyzing capital market data, particularly price charts, to predict future price movements. This method is based on principles that consider assumptions about markets and investor behavior. Unlike fundamental analysis, which focuses on economic news and information, It focuses on patterns and technical indicators in price charts.
The key concepts and methods for teaching technical analysis
Price patterns: Identifying various patterns in price charts, such as trends, reversal indicators, and triangles, which can indicate future price movements.
Technical indicators: Using indicators such as moving averages, relative strength index (RSI), MACD, and other indicators to analyze price changes and confirm patterns in the charts.
Trading Volume: Checking the trading volume next to the price chart is important for confirming the identified trends and patterns.
Important concepts such as trends, resistance and support: familiarity with important concepts such as trend lines, resistance, and support levels, which are crucial for decision-making in the market.
Determining and managing risk: Training on methods for determining and managing risk in transactions through it.
Comparing Technical Analysis and Fundamental Analysis
Technical and fundamental analysis represent two distinct approaches to analyzing the capital market, each with its own characteristics, advantages, and disadvantages.
Fundamental analysis
Approach: Fundamental analysis focuses on the economic, financial, and performance information of companies. This includes examining macroeconomic activities, corporate financial reports, political and economic events, and other related factors.
Importance: Fundamental analysis helps investors evaluate the true value of companies and markets, enabling them to make well-informed decisions.
Advantages: This approach is typically utilized for long-term investments and involves a thorough analysis of financial and economic data for market evaluation.
Disadvantages: Unlike technical analysis, which focuses on price charts, fundamental analysis may produce unreliable results and overlook the broader effects of uncontrollable events.
Technical analysis
Approach: Technical analysis emphasizes market data such as price charts and trading volume, focusing on different principles and patterns in the charts.
Importance: Investors use technical analysis to identify price patterns and predict the future direction of price movements.
Advantages: This approach allows investors to quickly see the reaction of market signals and use known patterns to make faster decisions. Also, it is suitable for short-term trading and active transactions.
Disadvantages: This approach may overlook important factors such as the financial information of companies and may be too sensitive to short-term market fluctuations.
Both technical fundamental analysis and approaches are crucial in making investment decisions. Depending on the investor’s strategy and objectives, they may use one or both of these methods. In practice, many investors combine these approaches to ensure they consider all important aspects of the market.
What are the different types of technical analysis?
Technical analysis can be conducted in various ways, utilizing different methods and tools to examine market patterns and indicators. Some of the well-known types of technical analysis include:
Analysis of price patterns
Trends: Identifying trend lines in price charts helps to determine the direction of price movement.
Reversal indicators: Reversal patterns in price charts are indicators of a potential change in the direction of price movement.
Utilization of technical indicators
Moving Average: The average price of the trend is used to determine the direction of price movement.
Relative Strength Index (RSI): It is an indicator that confirms and determines price points and market returns.
Volume Indicator: Checking the transaction volume next to the price charts is important to confirm existing patterns.
Market analysis of symbols and stocks: Examining market patterns and trends of symbols and stocks to predict general forex market movement.
Analysis based on trading volume: Examining the forex trading volume next to the price chart helps verify price patterns and predict the direction of price movement.
Analysis based on market psychology: Examining the psychological and behavioral factors that may influence the markets, such as investor sentiment analysis, fear, and greed.
These are just a few examples of technical analysis methods, and each of these methods may be different based on market conditions and an individual’s investment style.
What are technical analysis software?
To perform technical analysis, you can use various software and tools that offer different options for analyzing price charts and market data. Some popular software for technical analysis includes:
MetaTrader: MetaTrader 4 and 5 are among the most renowned and powerful software used in Forex trading and financial markets. This software offers comprehensive tools for technical analysis, including advanced charts, technical indicators, and executable scripts.
TradingView: It’s an online technical analysis platform that provides a wide range of tools for analyzing price charts, including various charts, technical indicators, drawing tools, and features for sharing analysis results.
Thinkorswim: A technical analysis software is provided by TD Ameritrade, offering various facilities for technical analysis, including advanced charts, technical indicators, and market analysis tools.
TradeStation: It is a robust technical analysis platform that offers extensive capabilities for analyzing price charts, executing trades, and implementing automated trading systems.
AmiBroker: It is a professional technical analysis software used for building and analyzing trading systems. The software includes various technical indicators and analysis tools.
These are just a few examples of technical analysis software, many of which provide extensive possibilities for market analysis and trading. Choosing the right software depends on your needs and preferences.
Trend line in technical analysis
The trend line is a crucial tool in technical analysis used to identify the direction of price movement. This line helps determine the general direction of price movement in the market. In technical analysis, the trend line is typically used in two ways: “uptrend line” and “downtrend line“.
Uptrend Line
- The upward trend line is a straight line that is drawn below the prices and connects several low price points. This line indicates the gradual increase in price over time and is often used on a price chart to show an uptrend in the market. It can be confirmed by higher price peaks, floors, or other significant points.
Downtrend Line
- The descending trend line is similar to the ascending trend line, but it is positioned above the prices and connects the highest points of the prices. This line indicates a decrease in price over time and is used to identify a bearish trend in the market. Points such as lower peaks and troughs or price highs can validate this line.
The use of trend lines in technical analysis helps investors identify the direction of price movement in the market and use them to make more appropriate and better investment decisions.
Last word
Since the advent of financial markets, technical analysis has been widely recognized as an essential tool for investors to make informed and successful decisions in the financial world. This analytical method offers a wide range of possibilities, allowing investors to carefully examine market patterns and indicators in order to make decisions based on reliable information. By using it, you can more accurately predict future market directions and achieve greater success in your investments. Therefore, by studying and practicing in this field, you can become an experienced and successful investor.
