Financial market analysis is an applied science that helps to understand, measure, and analyze the fundamentals of financial markets. This is done through the use of various tools and different strategies, and in this article, we will discuss technical analysis, its tools, strategies, and its importance in trading.

Financial market analysis is divided into two main types: fundamental analysis and technical analysis. To begin with, we must understand the term technical analysis and the difference between it and fundamental analysis

Technical And Fundamental Analysis

Technical analysis is considered one of the most important tools for traders to understand market behavior. It is a term used by traders and investors to analyze charts and various technical indicators to determine price trends, market movements, and predict future movements based on trends, patterns, and indicators that indicate high and low prices. Therefore, predicting future price trends focuses on evaluating the true value of companies and their ability to generate profits.

On the other hand, fundamental analysis is based on studying the economic, political, and social factors that affect the value of different currencies in the markets, following the analysis of important economic news and key indicators such as interest rates, inflation, and economic growth of countries to determine the value of different currencies. Analysts rely on news, events, and changes to analyze markets and make appropriate decisions, which we will discuss in a more extensive article explaining fundamental analysis.

Traders use many different tools, techniques, and strategies to achieve profits and avoid losses. Graphical tools can be defined as chart patterns used to analyze price patterns. These graphical tools include a wide range of patterns, such as Japanese candles, technical indicators, moving averages, technical patterns, and more, used to identify repetitive patterns in price movements.

Japanese Candlesticks:

a common graphical tool used in chart analysis that provides information about opening and closing prices, as well as the highest and lowest price for each time period.

Moving Averages:

a graphical tool used to analyze long-term price trends. Moving averages display average prices over different time periods and help to identify current and future price trends.

Trend Lines:

lines used to identify potential price trends in the short and medium term. Trend lines consist of straight lines drawn on the chart to connect the highest or lowest prices.

Technical patterns in the world of forex are broader than other tools, as they contain many patterns and shapes, the most important of which are:

Triangle Pattern: This pattern usually occurs when the upward trend of the price intersects with the downward trend at an angle. It is usually a sign of continuing the current trend.

Head and Shoulders Pattern: This pattern is characterized by three peaks, with the middle peak higher than the two side peaks. This pattern usually indicates a trend reversal.

Symmetrical Triangle Pattern: This pattern occurs when the price moves between two inclined support and resistance lines equally. This pattern usually indicates an opportunity to continue the current trend.

Channel Pattern: This pattern occurs when the price moves between two parallel support and resistance lines for a long period. This pattern usually indicates a continuation of the current trend.

Flag Pattern: This pattern is characterized by a decrease in trading volume and a contraction in the price range. This pattern usually indicates a trend reversal.

Rising Wedge Pattern: This pattern is characterized by an upward trend with a secondary upward trend that has a lower slope. This pattern usually indicates an opportunity to continue the upward trend.

Technical Indicators In Forex

Technical indicators in forex are graphical tools used to analyze charts and provide indications about potential price trends. Some of the common technical indicators used in forex trading include:

1. Relative Strength Index (RSI): This technical indicator is used to measure the strength of the current market trend and determine whether the market is overbought or oversold. The indicator operates over a specific time period and ranges between 0 and 100.

2. Bollinger Bands: This technical indicator is used to determine the overall market trend and evaluate possible price movements. It consists of three lines, including the simple moving average, upper line, and lower line.

3. Moving Average Convergence Divergence (MACD): This technical indicator is used to determine the overall market trend and identify buying and selling opportunities. It consists of moving averages, including the simple moving average (SMA) and the exponential moving average (EMA).

4. Standard Deviation: This technical indicator is used to determine the standard deviation of prices over a specific time period. It helps to identify the possible volatility of prices.

5. Momentum Indicator: This common technical indicator is used to analyze prices in forex and other financial markets. It measures the strength of the current price trend and its continuity. The momentum indicator is calculated by adding the current closing price of the currency to the previous closing price over a specific time period and measuring the difference between them.

We can say that technical analysis tools and charts in the world of forex are an essential part of effective trading strategies. They are also essential for building a strong strategic plan that helps traders identify appropriate entry and exit points in the market, determine market trends, and possible price changes.