For those who go into currency trading, knowing the Forex trading analysis and performing it is a must. Without this, there is no chance to succeed in trading.
The first question is what is Forex technical analysis?
Forex technical analysis is a method of securities estimating, that goes by analyzing the statistics of market activities, like past prices and volumes. It uses charts and different other tools to identify the patterns that can be suggestive for the future market activity. Technical analysis is much easier to perform than the other variant of Forex market analysis — fundamental analysis. Forex technical analysis requires less knowledge in macroeconomics and economics. Though technical analysis is based on the charts, people who are going into it are sometimes called chartists. It is recommended for every trader to be a little of a chartist — that helps saving the money and getting more profit.
Technical analysis on Forex can be performed with charts or with help of technical indicators or oscillators. Successful traders use both of these ways and they do the right. There are three basic rules of Forex market analysis:
- Price moves in trends (when the trend is set, the price most likely will follow it, not go against it).
- The market is used to discount everything (at any time, price reflects everything that has or could affect the currency — including the fundamental factors).
- History tends to repeat itself — patterns in price movements can repeat after years. That is why using historical data for Forex technical analysis is so important.
With the help of these rules, performing technical analysis gets much easier. The main thing that really matters is the past trading data of the currency and the information that can be provided by this data. For example, where the currency might move in the future.
The most important concept in Forex technical analysis data is the trend. The trend is the general direction of security or market, so, building the diagram or graphic, it is easy to see the trend and then follow it in trades. There are three types of trend:
- Uptrend (series of higher highs and higher lows).
- Downtrend (lower lows and lower highs).
- Sideways, or horizontal trend when there is a little movement up or down in the peaks and troughs, believed not to be a trend at all.
Trend line is the line representing the trend in the chart. Another term of FX technical analysis is a channel — two trend lines going in parallel to each other, representing the support and resistance level on the charts.
Talking about charts, there are few types of them in technical analysis too, like a line chart (the most basic one, representing only the closing prices over the defined period of time), bar chart (representing the highs and lows of the trading period, including the closing price, by additional vertical lines), and candlestick chart (similar to bar chart, but only with a thin vertical line additionally, that is representing the period's trading range). All of these charts need to be done with historical data, and when done carefully, they perform the great technical analysis.
Never underestimate the importance of technical analysis and it will lead you to better trades.
