Technical analysis (to simpifly the writing, this term will be replaced with the word “technical”) is one way to one approach to exploit prior market movements. Technical is predictive. This is done by assessing prices, volumes, and other things through various indicators. Technical is independent of economic science, and is more related to science, such as psychology, mathematics, statistics, and physics.
As indicated by the fundamental rationale of technical, each factor that may influence the price movements of the pair is reflected in the prices. In other words, prices are a kind of barometer. In technical, past market movements are the reference. According to the logic of technical, a price movement that occurred in the past will occur again in the future. Therefore, technical is useful for understanding the dynamics of the pairs.
In the ISE, where the depth is quite low and therefore artificial movements occur frequently, technical methods are often unsuccessful in small company shares. For this reason, it is possible to create artificial movements, especially in small company stocks in the ISE and similar deep markets, which are large for small investors but with a relatively small fund for the market mechanism. The fact that these movements, which are described as charting or making wood in the stock market jargon, are almost impossible to create in the forex markets with a daily average trading volume of 2 trillion dollars, significantly increases the success rate of technical in this market.
As in other markets, the psychology factor plays a major role in the forex markets, where macroeconomic data is mostly on the agenda. When we look at the Forex markets, it can be said that the data are directing the prices by creating supply and demand. However, the main basis of the prices is the expectations and perceptions of the markets about the data rather than the data itself. For example, disclosure of positive data in a pair trend is rather, it usually results in an increased response. Negative data in pair in rising trend may cause limited decreases. Exceedingly high expectations of the data may also lead to hard-rung movements. Realizations beyond expectations can create excessive optimism or panic effects on mass psychology.
AN EXAMPLE OF THE HISTORY OF MASS PSYCHOLOGY ON THE PRICE: TULIP MADNESS
The tulip, which was taken from the Ottoman Empire to the Netherlands at the end of the XVI. This wonder of tulip which is a new flower will soon be in serious demand.
He had created. The sale of grown tulips led to the purchase of more expensive tulip bulbs. Although the tulip was only a plant in real terms, it was perceived as a status symbol, and the interest of the poor Dutch was causing new demands and therefore new rises. The prices have climbed so much that commercial agreements began to be made over tulips and people began to mortgage their homes against tulips. While this crazy process was continuing, the emergence of tulips in the unique and colored way as a result of the mutation of a virus increased the prices even more. The madness peaked in 1636 it was possible to buy a land of twelve acres with a tulip bulb or a luxury manor in Amsterdam. In some sources, even a wealthy citizen of France, the brewery in his country to a Dutch citizen, a tulip bulb sold sells against. However, the fact that the expected mutations did not occur in 1637 led to the sale of tulips and the fact that almost all investors had invested all their assets in tulip bulbs. Such that prices fell by 95 percent in just one week. Every day, dozens of investors started to commit suicide by jumping into the canals of Amsterdam as a result of this madness.
This financial balloon, which is also the subject of the famous French writer Alexandre Dumas’ Black Tulip, is still a much-discussed issue, although it has been around four hundred years. As in the case of tulip craze. As a result of the excessive demand caused by social hysteria, the fact that prices have pushed the logic boundaries clearly reveals the importance of psychology in financial markets.
Today, due to the advancement of technology and the accumulation of knowledge, the diameter of the financial balloons is much smaller. However, it should be kept in mind that the 2007 subprime crisis, which still continues its effects, is caused by the bubble in the real estate sector.
POINTS OF THE TECHNICAL ANALYSIS
While technical has been successfully implemented by many professional investors, some investors and analysts prefer fundamental analysis based on the science of economics and finance, rather than this method of analysis whose scientific is discussed. There is even widespread prejudice among investors and analysts that technical is a fortune-telling or modern alchemism. Since the technical is a relatively new method of analysis, it is still a matter of debate in academic circles. But technical refers to the sciences such as psychology, statistics, and mathematics. For example, Fibonacci analysis is a scientifically proven method and is based on mathematical science.
The increase in technical results in acceptance in some academic circles and more media coverage.
Many traders and analysts can only use technical or just fundamental analysis.
Fundamental analysis is a method that requires knowledge and experience in economics, politics, and finance. By using this method, it is possible to foresee the future movements of any pair. However, market movements often do not take place in prescribed times and conditions. Therefore, it is sometimes misleading to invest in fundamental. Technical is far from economics, policy, and finance, and the reference point is price movements. For this reason, the trends and formations, which seem to be quite strong, may only be attractive for investors considering technical. However, the realization of the data and expectations that occurred in the data, such as September 11 and so on. In the case of extraordinary developments, the error of technical is much higher than the fundameantal analysis.
Because of these and similar risk factors that exist in both methods of analysis, it is possible to make investments by synthesizing both methods of analysis and give more accurate results in short-term investments such as forex. For example, technical of a pair with predictable direction can be carried out with fundamental-analysis and more accurate results can be made. As can be seen from these examples, the timing of an investment decision taken with fundamantal analysis is generally left to the technical, which generally yields accurate results. We can only compare an investor who invests based on fundameantal analysis to a cardiologist who decides to perform a bypass operation without looking at ECG graphs. Cardiologist, for many years without examining the rhythms of the patient’s heart.
The knowledge and experience gained as a result of the academic training process can be of no use if the rhythms of the patient’s heart are not examined. Similarly, the investment decision based only on the basis of analysis can have very negative results when the market movements are taken without examination. As a result, it is a great risk to take an investment decision without examining the movements of the market.