Technical Analysis. How Does It Work on Iq Option?

In this blog we regularly talk about technical analysis and its specialities, giving you different strategies and explaining how the indicators work. However, not all traders, mostly novice traders understand what technical analysis is and why it is so crucial. Nevertheless, even  professionals can find this article helpful.

What is technical analysis on Iq Option?

Technical analysis is a try to understand and forecast future price movements that based on the previous performance of the price action. Because technical analysis is a prediction is can’t be 100% correct and may give false signals. However, this method tries to report about the most probable outcome based on the current conditions.

Technical analysis can be applied to stocks, currencies, commodities, cryptocurrencies, indices and ETFs can all be subject to. Generally speaking, principles of technical analysis are universal and can be applied to any instrument/asset. In addition, the same indicators can be used in order to analyze all assets.

How does it work on Iq Option?

For the assets that can be affected by the law of supply and demand, technical analysis can be applied, but it does not work for securities where prices are regulated by political decrees for example.

In addition, there are some assumptions that should be satisfied so that technical analysis instruments work normally.

High Liquidity. High liquidity assets have to be traded in big volumes. With low-liquidity assets it is easier to manipulate and it is more difficult to trade in general. Aspects that have to do with low-liquidity trading make it unacceptable for technical analysis.

No artificial price changes. A stock split, being an artificial price change, does not affect the value of the company itself, but it significantly changes the stock price. Similar events cannot be solved by technical analysis.

No extreme news. Specific events like a terror attack or the death of a company’s CEO cannot be forecasted by using the technical analysis.

Basic principles

Price discount everything. Technical experts think that the price action shows all publicly available information. Generally speaking, all past events and announcements about the future  have already been shown by the asset price. Thus the price, shows the honest value of the certain asset. Afterwards this information is used to forecast the future.

Price movements are not totally random. In other words, there are periods when prices trend and when prices do not trend. Technical analysts claim that indicators can help determine short and long-term trends.

‘What’ is more important than ‘Why’. ‘What is the price?’and ‘What will it be?’ are commonly the only questions technicians ask themselves. While fundamental analysis has to do with the purpose of the price fluctuations, technical analysis has nothing to do with that. For technicians, prices rise when demand outweighs supply, and that’s it.

How to use technical analysis in practice on Iq Option?

Numerous technical analysts use top-down approach, they firstly evaluate broad indices, then separate industries, and only after that they move to individual stocks. It doesn’t matter what asset and on what timeframe you analyze, the steps you take will be relatively the same. First of all, you may want to determine the trend (e.g. Moving Average or Alligator). Then you may want to determine support and resistance levels, upper and lower boundaries than the price action can’t leave on a specific time frame (a horizontal line can help in this case). Next you may want to determine the momentum (e.g. MACD or any other oscillator) and excellent entry/exit points. As a last step, you may want to take all of the data you received from the previous steps and use them to make a prediction.

Conclusion

Technical analysts believe that the market works with 80% psychology and just 20% logic. Consequently, it is really crucial that you understand the signals you receive from the market, but of course, it takes time to learn and understand how technical analysis works.