Technical analysis refers to a wide variety of rules,
techniques and principles. We can distinguish two sub-disciplines in technical
analysis: chartism and "mathematical" analysis, which concerns
indicators.
Chartism (or
graphic analysis)
Chartism
concerns techniques which directly study charts, for example by plotting
straight lines (supports, resistances, trend lines, etc.) or by attempting to
identify "graphic configurations" which are repeated.
Chartist analysis constitutes the heart and origins of
technical analysis. Experienced traders find chartism to be more reliable, more
efficient and more useful than indicators.
The main
advantage of chartism is its simplicity: It is indeed very easy to master the
basics of graphic analysis, and then everything is a matter of experience.
According to
experts, the value of chartist analysis lies in the fact that it is interested
in "raw material", that is to say directly in the evolution of prices
on the charts, unlike the indicators, which pass. this raw information in
"mathematical mills", as if to refine it in order to derive
additional information.
Indeed, we
must not forget an old stock market adage which states that "all the
necessary information is in the prices" ...
Trading indicators and signals
Indicators,
for their part, include techniques for mathematical reprocessing of prices,
with most of the time a curve that is placed under the currency price chart,
and from which you can extract "signals" inviting you to buy or sell at
a specific time.
Usually,
when a beginner is trained in technical analysis, he feels like he has found
the holy grail of trading: A set of techniques to apply to know what to do and
when!
But not
everything is so simple, because you have to know how to interpret signals
correctly , you have to know how to eliminate "false signals", not to
mention the fact that technical analysis
is not an exact science and that the best analysis of the market world will
never be 100% right.
In our view,
technical analysis is more likely to
"put the odds in its camp", by assessing in which direction the
currency pair is most likely to move.
At this
stage it is indeed essential to understand that trading involves risks, and
that nothing, absolutely nothing is ever 100% sure when it comes to technical analysis.
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