Many traders makes their decision impulsively, wouldn't you agree? On the other hand are those who know how to use technical analysis and rely on data to help him make the right decision based on his understanding of market sentiment.
What is Technical Analysis? Technical analysis studies price changes based on market activity. It helps predict price movements by examining supply and demand levels on charts and tracking investor sentiment.
Three Pillars of Technical Analysis:
- Price Reflects Everything: All factors affecting price—psychological, economic, or political—are reflected in the market. Thus, predictions focus on the price chart.
- Price Movements Follow Trends: While individual price changes can be random, they can form trends over time. Trends can be upward or downward, indicating the market's direction.
- History Repeats Itself: Historical data analysis helps predict future price changes, as market behavior patterns tend to recur.
Automated Technical Analysis: Automated technical analysis uses algorithms and software to analyze trading data and predict market movements. These systems can process large volumes of data quickly, identify trends and patterns, and execute trades without human intervention. This automation enhances decision-making efficiency and reduces the emotional biases that often affect investors.
Common automation tools include:
Algorithmic Indicator Search Platforms: With use of predefined rules based on technical indicators to execute search automatically.
Machine Learning Models: These models use historical data to learn and improve their predictive capabilities. Machine learning algorithms can identify complex patterns and correlations that are not easily visible through traditional analysis
Backtesting Software: Allows traders to test their strategies against historical data to see how they would have performed in the past.
So, this long read is supposed to explain technical analysis, but it, like automation tools essentially supports your analysis with a simple data feed from which you draw your own conclusions.
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