Main 3 principles of forex technical analysis
Technical analysis is the most popular tool used and applicable to stocks, indices, commodities, futures, cryptocurrencies or any tradable instrument where the price is influenced by the forces of supply and demand.
Technical Analysis is the estimating of future price movements based on an examination of past price movements.
Technical analysis uses the indicators and a wide variety of charts that show price over time.
Technical analysis can be used for any freely traded security in any financial market
Traders use technical analysis to anticipate price movements, which makes it easier to distinguish areas of buy and sell.
Price data or market action refers to any combination of the open, high, low, close, volume, or open interest for a given security over a specific timeframe.
The timeframe can be based on Intraday data 1-min, 5-min, 15-min, 30-min, 1-hour, daily, weekly, Monthly.
Principles of technical analysis :
- Market movement controls everything
- There are trends in price movement
- History repeats itself
Market movement controls everything
This is the cornerstone of technical analysis and if the meaning of the first rule is not fully realized and accepted, it will not be easy to interpret the other rules.
All technical analysts believe that the price movement is only a reflection of the changes in supply and demand.
If the demand exceeds supply, the price will go up, if the supply exceeds the demand, the price will drop. This movement is the basis of all economic forecasts.
If the technical analyst thinks about this, In the case of a rise in the price, whatever the grounds for its advance, demand must outweigh the supply, and that the fundamental analysts will be pressured to get the price for the upward trend. Conversely, analysts will try to take the price for a downward trend in the case of a drop in price.
- There are trends in price movements
Here prices are moving in an upward direction, for example for a long period and are called an upward trend or vice versa in case of decline is the trend is downward.
It is possible to infer the validity of the measure that prices move in directions from Newton's first motion law, which is that the probability of continuing the trend in his movement is more than likely to be reversed.
And as a different way to mention this result, it can be said that the trend will continue to move in the same direction as it until the reflection is happening.
This is one of the other ideas presented by the technical analysis, which may seem useless in appearance, but it offers a way to follow the trend, which depends entirely on the tracking of the current trend until any indication of reflection signals
Although price action appears in the short term as a random move, this movement has a certain direction going either upward or downward
- History repeats itself
This means that the price action is "going" the same way you did beforehand if the conditions were similar.
The models formed in the chart that has been identified and categorized over the past hundreds of years Reflect certain images appear in the price charts and hear such a picture of the market's cyclical trend towards the upward or downward.
And because of the good performance of these models in the past is supposed to continue to perform the same quality in the future because it depends on the study of human psychology that will not change,In another meaning, history repeats itself that the key to predicting the future can be in the study of the past, or say that the future is simply a repeat of the past.
Technical Analysis Tools
There are many technical analysis tools like support and resistance, patterns and a lot of indicators. The indicators are the most popular tools, and It is very important for traders and investors to tack an overview understanding of the technical analysis tools that are available.
The most popular indicators
- Moving averages
- Bollinger bands
- Parabolic SAR
- Moving average convergence divergence (MACD)
- Stochastic oscillator
- Relative Strength Index (RSI)
- Accumulation / Distribution
- Money flow index MFI
Bill Williams indicators
- Accelerator oscillator
- Awesome oscillator
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