What is technical analysis and how did it start?

Technical analysis in the currency market is based on a set of foundations and concepts that have been formed throughout history, as Charles Dow is considered to be behind the beginnings of technical theory. Since then, the tools and techniques used in this field have evolved, becoming more sophisticated and complex, but the basic principles remain.

In the currency market, technical analysis is used to analyze currency prices and historical patterns with the aim of predicting future market trends. This includes using technical indicators such as moving averages, price channels, technical levels, candlestick patterns, oscillators, and other tools. For example, if prices are moving in an upward direction and cross a certain level, this may be considered a signal to buy. Conversely, if prices are moving in a downward direction and break a certain support level, this may be considered a signal to sell. Although technical analysis can be useful in making trading decisions, other factors such as economic and political events and general market risks should always be taken into account.

The main difference between technical analysis and fundamental analysis lies in the approach each takes to analyzing financial markets:

1. Fundamental analysis: Focuses on studying the economic and financial factors that affect the value of financial assets, such as companies, commodities, or currencies. The goal of fundamental analysis is to evaluate the true value of assets by examining a variety of information, such as financial reports, economic and political events, and world news.

2Technical analysis: It focuses on studying historical price movements of financial assets using charts and various technical tools. The goal of technical analysis is to analyze patterns and trends in price movement to predict future trends. Although technical analysis can take some fundamental factors into account, it mainly relies on historical price data

Technical analysis schools

Technical analysis schools are a group of trends and methods that are used in analyzing financial markets. These schools vary in the approaches and tools used, and each school may have its own principles and techniques. Here is a brief explanation of some of the types of technical analysis schools I mentioned:

1. Classic School: It focuses on using traditional technical indicators such as moving averages and price channels to determine price trends and entry and exit points from the market.

2The Harmonic School: It relies on the use of certain geometric patterns in charts, such as Fibonacci patterns and harmonic patterns, to identify recurring price patterns.

3. The School of Supply and Demand: It focuses on analyzing the levels of supply and demand in the market and how they affect the prices of financial assets.
4. The Elliott School is based on the theory of price development and recurring patterns known as Elliott Theory.
5. Price Action School: It focuses on analyzing price movement only without relying on complex technical indicators, and considers the actual price to be the main indicator for making commercial decisions.

The theory of technical analysis developed by Dow includes several key concepts:

1. Stock price includes everything: This theory assumes that the stock price reflects all available information about the company, and therefore, the current price is considered fair and represents the true value of the stock.
2. Price movement is not completely random: According to Dow, it is believed that price movement is not completely random, but rather has a pattern that can be analyzed. The technical analyst considers it possible to identify typical trends in price movement

Predicting the future:

True, technical analysis aims to predict future price movements based on studying past price movements. It is believed by technical analysts that prices follow certain patterns and recurring patterns that can be used to predict future trends. It is important to understand that the results of technical analysis do not cover all possible possibilities, but they provide assistance to investors in understanding general trends and anticipating what may happen with prices in the future based on previously discovered patterns.

For example, if the DAX has been on rise recently and is showing a clear upward pattern in chart, this may indicate a continuation of the uptrend in the future, and therefore technical analysts can make a positive forecast for future price movement. However, technical analysis should be used alongside other analyzes such as fundamental analysis and risk management to make sound investment decisions.

Some additional points about technical analysis:

1. Use a variety of tools: A technical analyst uses a variety of tools to analyze the markets, including charts, technical indicators, and price models. These tools help identify trends and key levels of support and resistance.
2. Expressing market psychology: Technical analysis can shed light on market psychology, as technical analysts can understand traders’ interaction with the markets and appreciate emotions that influence their decisions.
3. Analyze various markets: Technical analysis can be applied to a variety of markets, including stocks, currencies, commodities, bonds, futures, and options.
4. Intertemporal analysis: Technical analysis can be applied to different time periods, including short-term periods (such as daily or hourly charts) and long-term periods (such as weekly or monthly charts).
5. Risk reduction: Technical analysis can be used to determine entry and exit points and manage risks, as technical analysts can determine stop-loss levels and important targets to identify risks and achieve profits.