Forex Technical Analysis for Trading
Forex Technical Analysis is a technique for evaluating currency movements by analyzing the data generated by market activity such as price. Technical analysts attempt to analyze the data to identify patterns that can help them predict future price movements in the currency.
There are different techniques technical traders use to analyze data. Let’s look at a few key reasons why many traders think Forex Technical Analysis can be a good way to analyze currency movements.
Forex Technical Analysis is based on the assumption that the market discounts everything
It means the price of the currency reflects all the available information, including fundamental factors and thus doing fundamental analysis, would add no incremental value. Instead, technical analysts think the analysis of price movement or the supply and demand of the currencies is the best way to identify trends in the currency.
Forex Technical Analysis is based on the notion that price movements tend to trade within the trend or range
It means past price behaviour is likely to be repeated, and if a trend has been established the currency will most likely continue in the same direction. On the other hand, if a currency falls within the confined trading range, then trading signals will be generated near previous inflexion points.
In connection with the belief that the prices move in trends, technical analysis implies that history tends to repeat itself
As indicated in the case of range-bound currencies mentioned above, the assumed repetitive nature in price movements is attributed to the psychology of the market participants. It is based on the idea that market participants have, historically speaking, often reacted similarly to reoccurring market events. Many well-known chart patterns and indicators are based on the assumption that the history tends to repeat itself.
There are several benefits of limiting the amount of input required for making a trading decision to only the technicals, and there are many traders who believe that without fundamental analysis looking at macroeconomic factors that affect the economy and thus the currency that only half the story is being considered. There has always been the discussion between which is the better way, but it would likely be best for you as a trader to be well-versed in both the techniques of analysis. Both have their strengths and weaknesses.
Forex Technical Analysis is Not Just for Currencies
Forex Technical Analysis can be used on any financial asset with the historical trading data. It includes stocks, fixed-income securities, futures and commodities etc. In this tutorial, we’ll use technical analysis examples to analyze currencies, but keep in mind that the concepts can be applied to a type of securities.