Among the tools that can be chosen in the analysis is technical analysis of currencies, technical indicators and models, as well as identifying support and resistance points and their impact on market movement.
What is technical analysis?
The study of market movement and not the commodities or commodities traded in it, and technical analysis is the science of monitoring and recording - usually in the form of a graph - all the information related to trading (price, trading volume, trading history ... etc) not a specific currency or several currencies, then deducing the direction of prices In the future from the historical picture drawn.
Technical analysis is the study of the market from charts in order to predict the direction of future prices.
Markets move in specific directions, determined according to the perceptions and attitudes of investors for a range of economic, financial, political and psychological considerations, and technical analysis is nothing but the art of identifying changes in price trends at an early stage of time with the aim of maintaining an investment position in line with the current trend until it turns Price path in another direction.
There are many definitions of technical analysis, and it is noticeable that some key words are included in all definitions:
The beginnings of
technical analysis in the world go back to the end of the nineteenth century
and the beginning of the twentieth century. Its basic principles were
crystallized by following the stock prices on the American stock exchanges.
Since then it has been applied to the foreign exchange market, future commodity
markets, petroleum and metals such as gold, silver, copper, and others. Technical
analysis is based on a solid mathematical and statistical foundation. It is an
analysis of numbers and is based on information on each market. The most
important of them are: the highest and lowest price, the opening price, the
closing price and the trading volume.
Science, art, charts, market movement, price trends, trend reversal, and volume.
There is no doubt that technical analysis is a science, but these equations are not certain and deterministic and indisputable and just like all behavioral sciences that study the behavior of human groups, so analysts ’views often differ and their opinions differ.
Charts are the main working tool of the technical analyst, which are many and varied, and they are specifically: line charts, vertical lines or bars, Japanese candlesticks, and finally the Point and Figure method.
And the volume of trading also has an important share in the analytical studies. It is natural that the outlook differs and our assessment of price movement is not equal when the volume of trading varies in a price. The trading volume reveals the strength or weakness of the trend, and it shows the extent of the traders ’enthusiasm for the trend or for a certain price movement or level.
In this way, he helps the follower and observer of any active financial market in building expectations for future price movement and drawing policies for speculation and investment without necessarily having any information background or knowledge of the basics. Price movement in any market had different and varied characteristics and it is generally erratic as it sometimes accelerates and slows down. Other times. And price trends are either normal or sharp, very high or declining, and the period that prices spend in their direction in a certain direction is sometimes longer and sometimes shorter.
The technical analysis aims primarily to identify the direction of prices and detect any signal that indicates the possibility of changing its course as soon as possible so that this can be used as much as possible in making buying and selling decisions at the most appropriate time in order to reduce risks and maximize profits.
Technical analysis depends on reading history to benefit from it in the future. It means recording the historical sequence of prices in a graphical form, and analyzing past data to extract lessons to build future expectations on the basis of which buy and sell decisions are made in order to achieve the largest possible return while bearing the least risks. The price chart depicts the state of the market and the situation of buyers and sellers. It monitors the movement of market trading, shows the direction, and shows both support and resistance areas.
It also shows a number of price patterns that have specific connotations. Some consider historical price information to be more important for the speculator and investor to gain profits and ensure winning the battle for survival. The market is a strong adversary that always seeks to lose investors.
Technical analysis calls for taking lessons from the past and retrieving past price behavior in conditions similar to current market conditions, as history often repeats itself, so the technical analyst is able to predict the future with relatively great success, so there is no doubt that technical analysis helps the speculator to reduce risks and seize The appropriate opportunities to enter the market are those where the profit opportunities are high and the loss probability is low. The market is full of opportunities, the important thing is that one of them comes to enter or exit the market by buying or selling, only when there is one or more different technical analysis signals.
Technical analysis theory is based on four main pillars, namely:
1. The market value is determined as a result of the interaction of supply and demand forces.
2. The factors that affect the forces of supply and demand are multiple.
3. Prices move in certain directions and paths, and they tend to continue in the same direction.
4. Changes that occur in the balance of supply and demand forces are the same as that which change the direction of prices.
Technical analysis versus fundamental analysis:
In the long term, prices move up or down in the market due to the interaction of many economic and political factors. In the short term, it is noticeable that many trading decisions are based on psychological choices in the first place, as the price movement is governed by the aspirations and expectations of investors, the ambitions of speculators, and the emotions, hopes and fears of all market dealers.
As economists and those involved in fundamental analysis study the causes of price movement, they are revealing