Technical analysis is a method of instrument price behavior forecasting based on the analysis of price chart i. d. historical data on trends, price average values, trading turnovers, etc. The main subject of technical analysis is the price, as long as the price is objective resulting value of many interrelated economic, political, market and Force Majeure factors affecting it. The studying the price by means of technical analyzed method is possible, as long as place information is open and available for a long period of time, which allows identification of statistic consistent patterns. Based on the historical price data, represented in the graphic form the one can understand how the price conducts itself in different situations and thus forecast its future behavior with high degree of probability. The algorithms of most part of the trading robots are based upon price movement statistical consistent patterns.
Within the framework of Forex market, technical analysis considers not only the prices, but also the tick volumes – number of quotes.
Technical analysis is different from other analysis types due to the fact that is uses mathematical and statistical price research methods without considering economic and other perquisites for its formation. All technical analysis methods were designed independently, and they often are of expert nature. The unified strict technical analysis system does not exist, as long as there is only a set of separate methods and tools varying from the most like, for example, graphic analysis to the super-complicated like neuron algorithms. Moreover different technical analysis methods often are in conflict with each other.
The only thing that connects such separate tools is the common axioms and principles.
Technical analysis is based upon three postulates, which are sometimes also called the axioms.
- The price takes into account everything:
- Movement is subdued to the trends (Trend is your fried);
- The history repeats itself.
Technical analysis includes many various tools and methods, but all of them are based on one single assumption – by analyzing the time sequences of trading volume and price the one can distinguish repeated patterns and trends in order to determine the general market situation. Click here to view the examples of technical analysis.