Observing the movement of forex charts and using chart patterns and recurring chart shapes in the market to make buying or selling decisions in the market and Stock Trading strategies is often considered an art. Technical analysis which is also called " chart analysis" or "chartist analysis" is an approach that assumes that financial markets and their prices are directly related to the psychology of the participants in the exchange (traders) more than to other factors. such as health economy for example.
How does technical analysis work?
If you ask yourself the question " how does technical analysis work? ", then we can answer you that in its simplest form technical analysis is simply identifying the trend of a market . The course of the financial markets usually forms highs and lows, when drawing lines between these points strategies have obtained trend lines, supports and resistances.
If we extend these lines slightly, we obtain price levels on which prices are likely to rebound in the future. The conclusion of all this is that by practicing technical analysis, by tracing on the graphs of the financial markets, it is possible to identify the key points where one will have to buy or sell the market.
Are the graphs easy to interpret?
Often they are. However, effective technical analysis often involves spending several hours studying the charts and trying to find if certain things matter and are likely to influence the trending movement of the market, such as the crossing of a round price level .
You should know that the study of Japanese candlesticks makes it easier to interpret the graphs, for example we will easily spot on the graphs recurring figures such as hammers , hanged or heads and shoulders. By spotting these kinds of shapes we will be able to determine if a continuation of the trend is likely or rather if a trend reversal is about to occur.
Are there other tools to use?
In addition to the course represented graphically, the majority of private traders have the habit of grafting technical indicators to it . By doing so, they obtain more information relating to the traded market as well as alerts and signals to buy and sell which tell them when to take action, which confirm or invalidate their investment decisions. In addition to these technical tools widely discussed on online trading forums, intermediate and experienced traders generally like to pair fundamental analysis with technical analysis.
The perfectly studied technical analysis can be mastered and bear fruit, however it is not complete. In order to better analyze the financial markets and take advantage of them, experienced traders generally combine technical analysis with fundamental analysis. Although the differences between technical analysis and fundamental analysis exist, it is important to note that this second approach brings elements ignored by technical analysis and takes into account the announcements of the economic calendar . Indeed, the limits of technical analysissometimes pose problems and that is why it is advised in trading manuals to use the two major forms of analysis in order to best exploit the Forex market.
When you start in the stock market and in technical analysis, you try to know where you are stepping thanks to indicators. At the same time, one wonders which are really interesting to use, which give the best results and especially if there is an indicator which dominates them all? MACD, Stochastic, RSI, ADX, we balance volume…hop, hop, hop.
Before you start making a gas plant, and wasting your time analyzing which indicator gives the best signals, tell yourself that no indicator will be reliable in telling you the best time to buy and the best time to sell. . There is no such thing. In the end, on the stock market, all that matters are the prices!
Yes, I consider it much more important to learn how to invest according to prices rather than according to indicators. I don't see indicators as a way to predict but rather as a way to confirm. Only the evolution of prices, gives me buy and sell signals. The indicators allow me to confirm.
So put aside all those exotic indicators, and concentrate on studying the price chart.
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