What is technical analysis? Why is technical analysis needed?
Technical analysis is a method used to analyze asset prices in financial markets based on past performances and trading volumes. Technical analysis is a general term used for various strategies based on the interpretation of the price movement in a stock.
Technical analysis can be examined by examining the past price movements with the help of various tools and indicators and can be defined as methods used to produce accurate estimates for price movements that have not yet been realized. The basis of the technical analysis was built on the assumption that market prices reflect all information. According to this proposition, the market has priced everything, and therefore past price movements are the most important criterion used to estimate future prices.
Technical Analysts; Using tools such as graphics and technical indicators, they define patterns and trends in price movements. These patterns and trends are expected to reference to investors when making trading decisions. Technical Analysis Methods; Stock, foreign exchange, commodity, crypto currency can be applied for almost every asset class.
Technical analysis is usually based on the following three basic principles:
** market everything prices **:
This means that the market price reflects all information that may affect the value of an asset. This information includes basic economic factors, political events, natural disasters and even investors' emotional states.
** Prices act in trends **:
Technical analysts believe that prices often move in a certain direction ("trend") for a certain period of time. The trends may be up (bull market), lower (bear market) or side by side (flat market).
. ** Past performance may be an indication of future results **: Technical analysts believe that past price movements can help predict future price movements. This applies especially in cases where certain patterns and trends are repeated.
Technical analysis is usually performed using graphics and technical indicators. Graphics are a way of visualizing price movements and usually show price changes over time. Technical indicators use mathematical formulas to analyze price movements. These indicators are often used to measure trends, momentum, volatility and other market conditions.
Technical analysis can provide investors information about when they will buy or sell. However, technical analysis is not always certain and should be used with risk management strategies. In addition, technical analysis is generally used with basic analysis. The basic analysis evaluates the financial situation and economic conditions of a company. The combination of both types of analysis provides the most comprehensive market analysis.
Technical analysis is needed for various reasons:
** Purchase-Service Decisions **:
Technical analysis provides investors information about when an asset will be bought and sold. Investors can identify market trends using technical analysis tools and make purchase-sale decisions according to these trends.
**Timing**:
Technical analysis helps to determine the most appropriate time for the purchase or sale of an asset. For example, if the price of a stock is in the downward trend, the technical analysis can tell investors when they will take the share. Likewise, if the price of a stock is in the rise trend, the technical analysis can tell investors when to sell the share.
. **Risk management**:
Technical analysis can also help investors in risk management. Investors can determine market risks by using technical analysis tools and adjust investment strategies according to these risks.
** Efficient information **:
Technical analysis provides all the necessary information to investors quickly and efficiently. A technical investor can get information about the market quickly and accurately by using information such as prices and transaction volumes.
** Psychological factors **:
Technical analysis also takes into account market psychology. The reactions of investors to price movements can be measured by technical analysis tools and this information can help investment decisions.
As a result, technical analysis; It helps investors in terms of making-sale decisions, timing, risk management, efficient information, and taking into account psychological factors.