The Basics of the Technical Analysis
The technical analysis of the market is one of the main instruments of the assets’ price prediction based on the research of the exchange’s charts. This type of analysis works with any types of assets. Some approve it, some don’t, but it stays popular because of being based on the mathematical principles that allow determining the mood on the market without biases and the so-called human element.
Important Methods and Notions of the Technical Analysis
Technical analysis has lots of methods and markers that help analysts and traders see the picture and plan their next steps. Here are the most popular and proven by many years of practice.
Lines/levels of support/resistance
If you draw a line that would connect the levels of maximums and minimums on a chart, you will see the levels of support and resistance. The line of maximums determines the resistance, the line of minimums determines the support.
These data are counted based on the market’s initial data with the use of different formulas. There’s plenty of them, and the analysts keep inventing the new ones. The most frequently used one is moving averages. It’s the median price value taken in a certain period of time that allows following the movement of the asset’s price.
The figures of technical analysis
This geometrical method determines and analyzes the patterns of the currencies’ rates. Therefore, ‘head and shoulders’ mark the turnaround of the strong trend, ‘double top/bottom’ show the change of the mood on the market, ‘rectangle’ means the equal balance of power on the market, ‘flag and pennant’ marks the consolidation period after the change of the asset’s price.
‘Candles’ in the market’s context are the rectangles painted red or green depending on the balance of the opening and closing prices. Candles have ‘wicks’ – the lines of maximum and minimum prices. The length of the wicks determines the movement of the asset depending on its position (upper or lower).
Elliot’s wave theory reviews the cycles of asset’s movement – ‘waves’. Their amount may vary depending on a cycle’s length. The movement of the wave is divided into impulse and correction, according to the direction, upper or lower. Usually the cycles consist of five waves but there can be more depending on the situation on the market.
Despite the fact that the methods of the technical analysis are calculated scrupulously, they’re alone not enough to make a precise prediction. It’s also important to follow the news of the market and research its principles.