Technical Analysis Of The Stock Market!

How to apply technical analysis and anticipate the evolution of the price of a stock market asset. Best Trading Course in Australia Before telling you what this technique is, you should know the basics of technical analysis.

Want To Know More About Technical Analysis to Increase Your Profits Quickly?

According to Charles Dow, an American economist who at the end of the 20th century created stock market indices (Dow Johns) to assess the health of the economy, technical analysis is “the interpretation of the action of markets to anticipate future price movements.

Its objective is, therefore, on the one hand, to understand the main trends in the market (upward, downward or sideways trend), and on the other hand, to identify upstream the phases of weakening of a trend which can lead to a trend reversal.

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The Place Of Technical Analysis Within Stock Market Analysis Methods

It is important not to confuse technical analysis with fundamental analysis. Indeed, fundamental analysis is used to study a market in its functioning and in its change following new information. Technical analysis is old and independent of fundamental analysis. It is applied to study a market following the psychology of the participants and the future evolution of its prices.

The Basic Principles Of Technical Analysis Are The Three Basic Pillars Of Dow Theory Namely.

Prices follow trends

A trend is a general movement followed by the market up or down, apart from minor fluctuations. The cause of this movement is the appearance of a new important information for the market.

When favorable, it causes the market to rise. This rise in prices is not rectilinear since it follows several stages in its construction. The information is first integrated causing a first jump in prices.

History REPEATS ITSELF IN CHANGING FLOWS 

The graphic configurations that appear on the courses are characteristic because they are based on the study of human psychology which follows recurring patterns.

For more than 100 years, analysts have recognized the regular formation of the same chart configurations: triangle, channel, double or triple tops.  All these figures are only the translation on curve charts of the same market situations where the permanent psychological behavior of the stakeholders led to the same results.

The Market Discounts Everything 

This is the keystone of technical analysis. Anything that can influence the value of a property or security is at any time reflected in its market price.

Thus, the moment you become aware of information about it, it is already integrated into its course. Therefore, it is useless to seek all the information concerning the underlying and which could impact its price. It is enough to study the evolution of the price since this one is the result of all the rest.

You Now Know The Basics Of Technical Analysis

Technical analysis consists of studying the graphs of stock market prices with the aim of anticipating the evolution of the stock markets. It makes it possible to analyze the psychology of stock market participants.

Fundamental analysis is based on this principle: any stock market price must be in agreement with its fundamental value

So Here Are Three Reasons To Use Technical Analysis

You will be able to establish strategies simply thanks to the trading platforms which are at your disposal. Add technical indicators, graphic shapes, and many other elements which will give you the possibility. Of optimizing your signal of entry and your signal of exit.

The Different Streams of Technical Analysis

Several currents are distinguished within the technical analysis: chartist, statistical, elitist, and market profile.

Chartist Technical Analysis

Chartist technical analysis focuses on the movement of prices and volumes by attempting to find chart patterns that recur over time. In this category, we find classic figures such as triangles, double peaks, double troughs, or even Japanese candles. As you have understood, the purpose of Chartism is to find specific graphic patterns with the aim of anticipating the evolution of the underlying (equities, indices, raw materials, etc.)

Statistical Technical Analysis

Statistical technical analysis is based on mathematical indicators that can be divided into three groups: trend indicators, oscillators, and strength indicators.

Elliott Waves

Elliott waves according to this theory, prices do not move in a disorderly manner but according to harmonious ascending or descending cycles. The peculiarity of this theory is that this decomposition is almost infinite.

Technical Analysis The Different Types Of Charts

So that you can better understand what exactly technical analysis covers, I will start by listing the different types of existing charts.

The line chart

This is the basic chart used for technical analysis and is relatively simple. It makes it possible to clearly identify the trend and represent the closing or opening prices. This type of representation may be suitable for Trend Traders, Long Term Traders or Beginner Traders.

The Bar Chart

It is a slightly more complex chart with more information. It shows the opening price, the closing price, the variation of the asset over a determined unit of time. This type of representation is suitable for Chartist Traders or experienced Traders.