Technical analysis is basically your best friend on the market – it studies all your investment opportunities for you. It takes a lot of the pressure off by covering the lesser known and obvious trading features. What technical analysis studies are the trends on the market, trying to predict which direction they will go.
The main focus of this type of analysis are the price patterns. These patterns are quite useful since they serve as signals to whether the trend will go in a certain direction, or rather stay the same.
Since it focuses mainly on trends, you should know what the most common ones are. Depending on the current state of the market, they can be downward or upward. Both could go to your advantage, depending on what your goal on the market is. So study them carefully in order to apply them in the most suitable way for you.
Technical analysis can be used on many securities, from commodities to futures and currencies. It’s a unique trading discipline which you can apply to most trading cases, which is the basis of its appeal.
It was first introduced by Charles Dow in the late 1800s. Today, it has evolved so much that it contains a lot more methods and principles, depending on your trading goals. It is based on two of the most important statements:
- markets are the strongest factors contributing to the price of an asset
- market price movements are not random, rather they move in patterns.
Since it focuses on the patterns, technical analysis overtime developed another important principle – history repeats itself. In other words, price patterns and movements contribute to the formation of a certain trading psychology. This way, you can rely on the results of the analysis more than you would on your own predictions and expectations.