Technical analysis in trading: what is it and why using it?

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Different analysis methods, such as technical and fundamental analysis, allow financial market players to understand speculation and trading. A good upstream analysis often leads to the right decisions.

What is technical analysis?

In the speculative and volatile world of the stock market, technical analysis is not without importance. It is a method of analysis that, like fundamental analysis, is widely used by various financial agents, in particular traders. It consists of studying the prices of securities over time, over long periods, in order to be able to anticipate their variations and be able to know what the price of a security will be at a specific moment.

It is, therefore, an analysis that is based on the graphical study and which is not without risk since an important part of the analysis is based on probability and contingency. Technical indicators and graphical representations are all elements likely to be important during technical analysis. Optimal use of technical analysis can help identify trends in security, its volatility, but also periods of significant decline or rise reflected by bear flag pattern or bull flag pattern.

How to do technical analysis in trading?

Good technical analysis can greatly influence an investor’s decision to buy or sell a security in trading. Following the technical analysis of the security and its history, it will be easier to know when the price is likely to vary upwards or downwards and to adapt its action accordingly, namely to sell a security when its price is at its highest or buy it when it is inexpensive and potentially able to increase in the more or less near future. In trading, technical analysis is essentially based on its own tools: graphic representations and technical indicators, but also chart figures and Japanese candlesticks.

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How to do Forex technical analysis?

Forex ( Foreign Exchange Market or FX) is the financial market in which currencies from around the world are exchanged at exchange rates that vary permanently. It is also possible to carry out a technical analysis of Forex by studying the price history of a currency, its volatility and its trends. Several indicators are available to a Forex investor, such as candlesticks, which make it possible to study the evolutions of the price of a currency: the good study of the different candlesticks can, for example, make it possible to detect the signals of reversal of the currency.

Technical analysis and fundamental analysis

Accessibility is what separates technical analysis from fundamental analysis. Indeed, it is a priori simpler to carry out a technical analysis, which is mainly based on the study of graphs, than a fundamental analysis which will require a perfect understanding of the economic data of a company or a country.

When it comes to the stock market, fundamental analysis studies the elements that make it possible to know a company well and understand some of the factors that can affect the share price. Finally, this analysis can help you better understand the true value of various financial assets and determine the appropriateness of your asset selection.