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  5. Technical Analysis and Its Fundamentals in the Markets

Technical Analysis and Its Fundamentals in the Markets

Technical Analysis and Its Fundamentals in the Markets

To master technical analysis, you must master classical analysis, and to be at a degree of professionalism, you can master wave analysis with classical analysis, and these two are entirely sufficient.

How do you study technical analysis?

Classical analysis is the origin of technical analysis, and all other schools and strategies are just an explanation.

The classical analysis is nothing but trends of its three main types, tops and bottoms, supports and resistances. Then comes the models, which initially emerged from the womb of the trends and the reciprocal movement of prices, only tops and bottoms.

All known technical indicators are not initially from technical analysis and are not relied upon in decision-making, but instead, they are only for reference and to support the research only because most of them are related to the price movement, and whoever analyses it based on technical indicators is not called a technical analyst.

Technical, wave and classical analysis

Sometimes the classical analyst sees, for example, the breaking of the trend that he did not expect and did not take into account, and the wave analysis comes and explains that the break is normal to form a corrective wave, whether it is a secondary or a major wave, and the same applies to the unexpected trend breakout, or what is related to the unacceptable movement of the classical analyst at the tops and bottoms, and he finds an explanation for it at wave analyzer.

For that, the combination of the two schools is considered necessary so that the analyst can, as much as possible, adjust the analysis process.

Unlike fundamental analysis, which attempts to assess the value of securities based on business results such as sales and profits, types of technical analysis focus on the study of price and volume.

Technical analysis tools are also used to examine the ways in which supply and demand for securities and assets affect changes in price, volume, and volatility in the markets.

Schools of technical analysis of all kinds are often used to identify short-term trading signals from various charting tools, but this can also help to assess better the strength or weakness of security in relation to a broader market or one of its sectors as this information helps technical analysts to estimate the overall assessment of the market better.

The types of currency analysis can also be used on any security or asset by combining it with historical trading data, and this includes stocks, futures, commodities, fixed income, currencies and other securities.

Professional analysts often use types of technical analysis in combination with other forms of research. Retail traders may make decisions based solely on stock price charts and similar statistics, but practising stock analysts rarely limit their research to fundamental and technical analysis alone.

Researchers developed hundreds of patterns and signals to support the trading of technical analysis types. Technical analysts have also set many types of trading systems to help them predict and trade price movements.

Some types of technical analysis of stocks focus mainly on determining the current market trend, including support and resistance areas. In contrast, others focus on determining the strength of the trend and the possibility of its continuation. Technical indicators and commonly used chart patterns include trend lines, channels, moving averages, and momentum indicators, and in general, technical analysts divide Types of technical analysis to:

  • Price trend analysis
  • Analysis of chart patterns and patterns
  • Analyzing the signals of volume and momentum indicators
  • Oscillator signal analysis
  • Moving average signal analysis
  • Analysis of support and resistance levels

Correct technical analysis steps

Many technical analysts follow what is called a top-down path. Which begins with analyzing the big picture (the general index of the market), and then the largest part of this picture is then divided to form the basis for the final step of a more focused analysis.

Such an analysis could include the following:

  • Analysis of the general index of the market
  • Sector index analysis to identify the strongest and weakest sectors within the index
  • Analyzing each stock separately to identify the best-performing stocks within the sector

What is unique about the world of analysis is its versatility. The theory of technical analysis is a general theory that applies to anything, so the same theory can be used to analyse any of the mentioned indicators.

You don’t need a college degree in economics to analyse charts and market indicators.

Charts are charts it doesn’t matter if the duration is two days or two years.

It doesn’t matter if it’s charts for a particular stock, market index, or even another commodity (as long as the principle of supply and demand governs it).

The principle of analysis of support and resistance, pattern movement, random movement and other aspects of technical analysis can be applied to any chart. And if this seems very easy, we cannot in any way say that about it because success in using this skill requires serious study, learning, and an open mind.

Criticisms of types of technical analysis

Some analysts and academic researchers criticise that showing combined price action over large and small timeframes demonstrates the strength of the price trend. This is because no actionable information is expected to be contained in historical price and volume data. However, by the same logic, market fundamentals should not provide any actionable information and define perspectives. These contradictions and the semi-strong form of the combination of large and small time frames in the types of technical analysis.

Another criticism of the types of analysis is that history only repeats itself partially and accurately. Hence, the study of the price pattern is of dubious importance and needs to be addressed. Price forecasts are also made better by assuming a random direction.

The third criticism is that all types of technical analysis work in some cases but only because it is a prediction or expectation that comes true on its own for example, many technical traders will place a stop loss order below the 200-day moving average for a particular trade and if a large number of If the traders do this. The asset reaches this price. A large number of sell orders will push the asset down, confirming the movement that the traders expected.

Then other traders will see the price drop and sell their positions, reinforcing the trend’s strength. This short-term selling pressure can be considered self-fulfilling but will have little effect on where the asset price will be weeks or months after the actual time.

In short, they think that if enough people use the same signals, they may cause the movement that the signal predicted, but in the long run, this single group of traders cannot push the price towards a specific direction.

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