What is the technical analysis of the stock market?
Technical analysis of the stock market is one way to predict market prices through the study of the past market situation. In this analysis, by examining changes and fluctuations in prices and the volume of transactions and supply and demand, we can predict the situation of prices in the future. This method of analysis is widely used in the foreign exchange market, the stock market, the gold and other precious metals market. Technical analysts do not measure the intrinsic value of securities, instead they use stock market technical analysis charts and other tools to identify patterns that can predict future share activity.
Technical analysis of the stock market is done by “studying the behavior and movements of the price and volume of shares in the past and determining the price and future trend of the share”. Share price changes are analyzed using a historical background and diagram by a technical analyst. Investors use this method with a short-term perspective. At Exir Consulting and Investment Group, we use the most up-to-date and best technical analysis of the stock market for our customers.
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To enter the stock market and buy and sell stocks, you need to be familiar with a few concepts. One of these concepts is technical analysis, which allows you to know the market situation and look at the market situation from a different perspective and finally, you can move forward in the difficult path of trading with more knowledge and mastery of the market. But it is still a question for some that what is technical analysis and what is its purpose? Before answering these questions, you should know that this method is almost 300 years old and perhaps its first use was economically by Charles Dow. Charles Dow is the person who has registered the Wall Street Journal and the Dow Jones Industrial Average in the United States.
As we have said, the first time that economic and popular technical analysis was used was by Charles Dow. So it would be nice to review Dow’s theory in this regard.
Guide: Read the main and most practical terms of the stock market here.
To put it simply, price is all that matters and because all the factors of supply and demand have affected the price, we have to look at the price.
The market follows a certain trend, and according to Dow’s theory, there are ups and downs in the market. Ascending trends continue to grow and rise, building peaks, and descending trends moving down and building valleys. In this case, Dow believed that Newton’s law of action and reaction, or Newton’s third law, not only ruled the natural world, but also the financial markets. This means that there is a descent behind each ascent.
Different definitions of technical analysis
In addition to Dow’s theory of technical analysis, there are other definitions that we examine:
As we said, everything is price. In other words, experts are examining price movements in the past and using the analysis they have obtained from price movements in the past to predict prices in the future. In another definition, experts consider this analysis to be an analysis of market behavior, i.e. trading volume, pattern formation, price charts, and other technical indicators. Technical analysis is an analysis that examines the price of bonds and commodities and other factors that have a price, based on patterns of price and volume changes and without considering the fundamental factors of the market.
Another definition given for it is that it is an artistic method that can, at the very beginning of the price change, recognize the time to change the price trend and ride the new wave of prices. This model is important here in that it identifies new price changes before the whole market realizes this change, new decisions are made to invest.
Guide: 8 common problems in technical analysis
Types of technical analysis scientifically
This science is generally divided into two categories:
Mental technical analysis
Objective technical analysis
This model is based on observations and each person may have different perceptions of it. This means that one person may see a pattern in a chart and another may not. That’s what makes perceptions different and you can see that in classic patterns.
In contrast to the mental technical analysis, objective analysis which is based on observations, is based on calculations. This means when experts say that the parameter price is high, this pattern can be considered accurate, and everyone agrees on this.
The benefits of technical analysis
Many people doubt the usefulness of technical analysis and do not know whether this model will be useful in practice or not. This has led to misconceptions, which we will discuss below:
Past prices cannot be used to predict the future.
One of the most misconceptions in this approach is that people think that past prices cannot be used to predict future prices. While this assumption is wrong, and at least human nature is a good reason to show that our past behaviors can affect our future behaviors.
- Academic authorities do not believe in technical analysis.
In the past, academic authorities have not had a favorable opinion but after a while, it was observed that issues such as the change of seasons could affect the market trend, and thus, after a while, the academic authorities realized the usefulness of this analysis.
Highly used diagrams in technical analysis
The stock exchange technical analysis diagrams is one of the most important tools for corporation of finance managers to be able to monitor changes in the financial market every hour or every day. These diagrams are very useful and need to be used. A person who is active in the stock market, should not throw himself into the water and needs a technical analysis of the stock market. Some diagrams are simple and some are logarithmic. Some charts show the time from 1 second to 1 month. It depends on the type of need and the activity of the company involved.
Exir Stock Investment Company is one of the stock exchange activists who can give technical analysis of the stock exchange about the stock market, securities and energy to its audience.
Types of technical analysis diagrams
There are 3 types of diagrams in stock market technical analysis, which we examine:
- Linear diagram
Linear diagrams are common diagrams in stock market technical analysis which is formed by connecting the points of the transaction price points. This diagram is very simple because it only shows the closing price of the transaction in one day. Closing price is the most important price in stock changes but the linear graph does not show the range of the trade fluctuation.
- Bar graph
It is a chart that is common and widely used. Because it gives more information to the analyst. High and low prices also indicate the closing and opening prices of the transaction. There is a vertical line with the closing price on the right and the opening price on the left. If the open price is lower than the price, it means that those stocks have risen in trading, and vice versa.
- Candlestick chart
It is a chart that is often used by analysts. The information that this chart gives to the analyst is more than the bar and line chart. It is a diagram that summarizes the events of the day. Each candle in the stock market technical analysis chart consists of different components. This chart has a clearer and more tangible appearance than a bar chart in such a way that from its appearance, a lot of analysis can be done. In this chart, the type of relationship between starting and ending prices and the lowest price and the highest price can be compared. As stock prices rise, the rectangle will be bright and white. And with the stock price falling, the color of the rectangle will be dark and black, which means that the direction of the color trade is recognizable.
What is the meaning of candle?
Here are some tips to help you get started:
Technical candlestick charts
- Upper and lower rectangles:
The start and end points indicate the opening point of the market share and the closing point in the market.
- Top and bottom lines:
There are two vertical lines at the top and bottom of the rectangle that show the minimum and maximum.
- White and black in candle:
The concept of these two colors in the stock market technical analysis chart is quite the opposite. And the location of the starting and ending point changes. In a black candle, the opening point of the share is at the top and the closing point, at a lower price and at the end of the day is at the bottom of the rectangle. In the white candle, the opposite is true.
The technical analysis chart of the stock exchange is one of the most important tools for corporation of finance managers to be able to monitor changes in the financial market every hour or every day. These diagrams are very useful and need to be used. A person who is active in the stock market, should not throw himself into the water and needs a technical analysis of the stock market. Some diagrams are simple and some are logarithmic. Some charts show the time from 1 second to 1 month. It depends on the type of need and the activity of the company involved.