In their work in financial markets, traders use two methods of data analysis to predict price movements. Fundamental analysis is based on the study of economic indicators, as well as taking into account various kinds of news. In contrast, technical analysis is completely based on mathematical methods and is aimed exclusively at studying price charts.
Technical analysis is based on the study of historical data on price movements. Hundreds of different indicators are used for analysis. With the help of these indicators, an experienced trader can predict the future market behavior with a certain accuracy.
The main way to analyze chart data is to look for the so-called support and resistance lines, as well as to determine the trend line or the main trend. Support and resistance lines form a corridor in which the price chart moves. The support line is located below the price chart, and the resistance line is above it. The direction of these lines shows the trader where the price is moving, thus determining its trend. The trend line is also used to determine the trend, it clearly shows the market players where the price is moving and, thus, lays the foundation for further analysis. Determining the main trend is considered one of the main tasks in the technical analysis of the market.
For a more accurate analysis of price movements, as well as to determine the points of entry into and exit from the market, technical indicators are used. They are mathematical models expressed graphically. Depending on how they are plotted, technical indicators are divided into trend indicators such as MA (Moving Averages) and momentum indicators such as RSI (Relative Strength Index). Trend indicators are used to determine the direction of prices, while impulse indicators are used to measure the speed and strength of their fluctuations.
The use of technical analysis is not difficult, but it requires studying a large number of indicators and charts. It is believed that such analysis gives better signals for buying and selling compared to fundamental analysis, which is why it is very popular.
