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?
First definition:
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.
Second definition:
Technical analysis is the study of the market from charts in order to predict
the direction of future prices.
Third definition:
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.
/ Technical
Analysis Philosophy
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