Technical Analysis

Technical analysis

Technical analysis refers to the analysis of market using past price charts and graphs to predict where the price will move or how it will react based on its behavior in similar situations in the past. Technical analysts tend to look for trends in price movements, with the logic that the past tends to repeat itself – what happened to the price of Gold the last time in similar market conditions? Chances are, the price will behave similarly this time, too.

Technical analysis today is made a lot easier to both learn and utilize, due to the full integration of multiple technical analysis tools into the trading platforms themselves. Tools such as Bollinger Bands or Fibonacci retracement are now available to both the analyst, and the learning trader, at the click of a button, without requiring plenty of complex mathematical calculations or formulas. These tools can help give the trader an idea of which way the price is more likely to move, thus highly improving the potential to make a profit.

Essentially, technical analysis relies on two key principles – seeking and following the trends of price movements, and the fact that history tends to repeat itself. If the price reacted to the market conditions in a similar manner multiple times in the past, it is much safer to assume that it will take a similar course. Technical analysis, however, does not focus on the possible reasons behind price movements, instead choosing to focus on the price movements themselves.

Perhaps, the main reason why technical analysis is of such great importance is that it grants the trader or analyst the ability to monitor many markets simultaneously using simply charts and tools, without focusing too much on the fundamentals of said market.