Technical analysis is a method, that attempts to predict the most probable direction of movement of prices in the future based on past market data, among which the most important role plays the price of a financial instrument and circulation during period.
The main advantage of technical analysis is that is simple to use in predicting the future prices of exchange rates or any other object of trade, where the price depends on supply and demand. In addition to simplicity, the biggest advantage that technical analysis have before fundamental analysis is, the possibility of determining the point of purchase. By using the tools, technical analysts can accurately determine when to buy or sell a specific financial instrument.
Technical analysis has a number of weaknesses, too. Despite the fact there are standards in the interpretation of certain indicators, it is possible, that two analysts based on the same indicators come to different conclusions. The method of technical analysis has been also strongly criticized because of updating, because it identifies the trends when they are in full swing.
So, we found out some of pros and cons of technical analysis. Some analysts are trying to exploit the advantages of both methods, so that with fundamental analysis determine which financial instrument to buy, and then with technical analysis decide when to buy it.
The main tool for technical analysis are the charts, which are essential data rate and traffic. In use there are many different methods for modeling price movements in graphs and the most popular are:
Identify trends and support / resistance levels are the primary tools used by technical analysts to identify patterns of price movements. The pattern of price movements finalizing a general overview of technical analysis.