THE STRATEGY OF TECHNICAL ANALYSIS.

THE STRATEGY OF TECHNICAL ANALYSIS.

Introduction completes to the strategy of Technical Analysis.

The Technical Analysis is a strategy of investment that consists of the analysis of graphs or economic indicators to predict the price of the future from the price of the present. This strategy of investment, which is one of the basic strategies of investment in FOREX (but which not only is applied to FOREX, but to all that market where the prices could be placed in a graph that shows historically the prices of the past up to the present), it works almost exclusively with graphs, is for it by that to investor who base on this strategy it they is called market analyst (that it is the name for the graphs in English). The work of this one strategy is straight on the price and the analysis of bosses on a graph, this way the investor who uses the strategy of Technical Analysis takes his decisions and does his investments.

It is necessary to warn, that although the technical analysis is a powerful tool for the investment, this strategy owes to be updating constantly, so the strategy of investment that works today is possible that it does not work tomorrow. It is a challenge for the investor being updating constantly his strategies.

A big advantage of the strategy of technical analysis is his big versatibilidad, it is possible to apply to all kinds of situations, in almost all the moments, on different markets. The strategy of technical analysis serves for all kinds of market, can be in currencies, can be in consumer goods, can be in industry, actions, etc. The only thing that it imports is that the market to which there is applied to him this one governed by the forces of the offer and the demand, which are the laws that they affect to the whole economy. On the other hand, this strategy adapts itself to all kinds of periods of time. To work with the strategy of technical analysis the investor takes the period of time that he wants and from him it extracts his conclusions. This way, it can take like minutes as basic, hours, days, months, years and do an investment that can last minutes, hours, days, months, years... depending on the needs and criteria of the one who is investing.

Another big advantage is that it is not necessary to be an economist to be able to use the strategy of technical analysis, since it is not necessary to know so much information as anybody needs that it uses the fundamental analysis, as it is the analysis of the imports and exports of a country, of his gross internal product, of his perspectives to the future, of the decisions of the governments, etc. In the strategy of technical analysis all this is not needed, since the technical analysis departs from the base of which the price is quite what it is necessary to know and his hardware is the indicators and graphs that there show him the bosses that he needs to identify.

In any case, this does not mean that the technical analysis is easy. To reach success with this one way of investing a conscientious, patient study is needed and also it helps enough the experience. After all the strategy of technical analysis demands of the investor the aptitude to identify patterns inside abstract graphs and that can mean many things.

Theory of the strategy of technical analysis.

According to the persons who have created the strategy of technical analysis the price reflects all the information that it is a necessary knowledge to be able to determine the tendencies of the market. This way, the technical analyst from the moment in which it knows the price determines that decision should adopt in the future about his investments.

The one who invests with the strategy of technical analysis acts under the belief of which the price is everything what he needs to know about the market, since to try to know the causes that determine the price, which is the matter with which the strategy of Fundamental Analysis deals, it is an endless task. On the market a lot of forces move and they are very complex and often it is impossible to know all the necessary information on time and it is for it that to try to know the reason for which a certain price happens is fruitless.

The strategy of technical analysis separates then of looking for the reasons of the price and rather it determines that it is not needed any more that to identify the tendencies and patterns of the graphs to know and to be able to invest on the market. From the indicators, these investors determine tendencies to the rise or to the fall, points of rupture, lines of support and resistance, between other aspects that are identified of the analysis of a graph and this way they determine what they will decide for a future.

Fundamental aspects.

In the strategy of technical analysis two basic essentials exist to carry out the investments: The analysis of lines of support and of resistance and the identification of tendencies.

Lines of support and resistance: These points are a few prices in which the market, within certain certain time period, tends not to exceed. This way, the support lines are a price in which the price tends not to go down any more in normal conditions, the resistance line is a point in which the market tends to refuse to raise the price beyond that one point. The knowledge that the investor has of these lines is vital to do guessed right analyses, since to he allows to identify the point where the market can change tendency or also, when these lines are exceeded, to he allows to know that there is a tendency to the rise or the fall immediately.

Tendencies: A tendency is identified when there takes the average of variable price (initials in English are M.A). of a currency, which is the average of prices that it has had in a certain time period. With this average the investor observes, in a tendency to the rise, if the points where there come the summits of the lines of increase of price are higher and higher to comparison of the previous summits of rise and the abysses of the oscillations in price falls present the pattern of that between one and another abyss (that is to say, the low point of the price before it begins to raise again) every time the average of the price is higher. To identify a tendency to the fall the process is inverse.

Some of the indicators of more important graphs in the strategy of technical analysis are:

Distribution of the accumulation, Index of Arms (TRIN), Oscillation of McClellan, Momentum, Lines and proportions of Advance - slope, Warning Commodity Channel Index, Bands of Bollinger, parabolic SAR, Convergence and Difference of the Variable Averages, Oscillator RSI, Variable Averages, Graph of volume, Volatile nature and Estocástico.

Related articles:

Strategies of Forex: Technical analysis
 

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