Before stepping into the stock market, you need to meet certain prerequisites, one of which is familiarizing yourself with how to learn technical analysis. Acquiring this skill requires reading, researching, and seeking information. To find the best approach in this regard, it’s essential to understand what technical analysis is and its underlying principles. FFMag aims to assist its audience and readers in this journey by providing necessary guidance.
What is Technical Analysis?
Technical Analysis, also known as a trading discipline, is a practical and effective method for predicting prices. Its performance is based on studying and analyzing the past behavior and trends, or the historical movement of prices and trading volume, under the prevailing market conditions. This analysis aims to assess the quality and risk of investment and identifies opportunities by analyzing data that facilitate favorable conditions for trading.
Based on this type of analysis, past market activities and fluctuations that have occurred for securities act as indicators for predicting and evaluating future prices of these securities.
Principles of Learning Technical Analysis
To understand the fundamental concepts and methods of learning technical analysis, it’s important to know its general principles, which can be summarized as follows:
First Principle: The main issue and the root of important decisions must be sought in stock prices.
Second Principle: Market trends indicate the movement of prices.
Third Principle: Specific patterns of determining stock or commodity prices repeat, allowing for prediction.
These principles can be summarized succinctly as follows: trends, patterns, indicators, signals, and signs.
Steps and Methods of Learning Technical Analysis
If you’ve decided to familiarize yourself with technical analysis and proceed with it through systematic and logical steps, FFMag provides necessary information by introducing the following stages. However, before that, we have two general and important recommendations for you:
Strengthen your knowledge foundation: Before anything else, expand your understanding of this analysis and delve into it deeply. Read useful books, participate in practical and successful online or offline courses, and don’t overlook valuable websites.
Take practice seriously: After getting acquainted with the basics and learning how to perform technical analysis theoretically, the next step is to practically apply these processes. Start by evaluating very small transactions through technical analysis. Remember, the initial alignment of your analyses with market performance and results isn’t necessarily an accurate reflection, so don’t base serious decisions solely on it. Always remember that you’re still at the beginning of the road.
Steps of Learning Technical Analysis
Continuing on, we introduce several steps to learning technical evaluations of financial markets:
Learning Stock Charts: You can’t dive into market analysis without understanding charts that depict stock prices and trading volumes. Technical analyses are intertwined with various types of charts, such as line, bar, point, and other commonly used charts for explaining price trends. Understanding terms and definitions such as candlesticks and their components, points where prices open and close, prices, and types of charts are essential for conducting technical analysis.
Another aspect you need to master in this regard is the discussion of time intervals and their importance in trend assessment. Understanding this topic will help you better recognize and understand price patterns. Fortunately, you can define and adjust charts from one-minute to five-minute intervals, 15-minute, and 60-minute intervals, or analyze them based on daily, weekly, or monthly timeframes.
As you become familiar with learning technical analysis, you’ll gradually learn which traders use which charts and with what specific time intervals for their activities and benefit from them.
Familiarity with Technical Indicators
Technical indicators refer to the presence of indicators that are highly useful for traders and greatly assist them. Their clear role is particularly evident in financial and business decision-making times. These indicators, which are used as powerful tools in trend analysis, come in various types classified into two main categories: “Price Indicators” and “Movement Indicators.”
In the category of price indicators, various combinations enter as indices, and in movement indicators, moving averages and RSI serve as indicators. Within these effective tools, one can also utilize other tools such as Bollinger Bands or trend lines, which provide accurate and important information about the continuation of market trends.
Read More: Introduction to Economics: Understanding the Fundamentals of Economic Systems and Growth
Identifying Chart Patterns
Technical analysis connects you to the world of indices and charts; therefore, studying chart patterns is essential. To analyze some of them, you’ll need to examine indicators and price patterns, which may only be provided to you through candlestick charts. Considering the vast range and extreme diversity of patterns governing stock charts, it’s best to start with simpler patterns that seem easier for you to identify and gradually recognize more complex patterns with various names.
Daily Application of Theoretical and Practical Knowledge
No matter how much we emphasize the importance and necessity of daily practice in mastering technical analysis, we haven’t said enough. Consider multiple time intervals every day, adjust indicator settings, identify upward and downward trends and their breaking points. Find patterns in the charts and consider the trend before and after them. Your eyes should become familiar with the details and patterns hidden within trends, which requires a lot of practice.
Summary
Familiarizing yourself with the process of learning technical analysis includes four steps recommended for beginners to seriously consider. These four steps are: learning stock charts, becoming familiar with technical indicators, identifying stock chart patterns, and applying daily theoretical and practical knowledge. By following this four-step path, it’s essential to pay attention to two general and important recommendations: strengthening your foundational studies and general knowledge of this type of analysis and giving importance to expanding continuous and daily practice.
Also Read: Navigating the Perils: The most dangerous times to trade
By David Taha