To most of the beginners who are new to the concept of Forex trading, can find Forex technical analysis to be as complex as rocket science. Sometimes they even mistake it as the fundamental analysis. Though, critical thinking is one of the major parts of both fundamental and technical analysis but, these are conceptually situated poles apart from each other. They are certainly placed on the opposite direction of a subjective-objective compass.
So, I always recommend my fellow traders to have a detailed knowledge regarding both the kinds of analysis to excel further in the field of foreign currency trading.
As we all know Forex is referred to dealing with foreign currencies. It involves buying, selling and making investments depending upon the changing values of the currencies, to earn as much profit possible. It is regarded to be quite a risky affair by the practitioners. The risk factor is mainly concerned with their sudden change of value, and that too within a very short span of time. All you need to do is to understand and analyze this changing pattern; and if you can manage to get hold of the trend then nobody can stop you from achieving success.
Now we will discuss in details about one of the prime methods of analysis, which the Forex technical analysis that is greatly used as a forecast tool to detect the nature of the concerned market. It helps the traders to predict the price or the movement of the currencies. The main function of the technical analysts is to study the effect of movement on the market; whereas the fundamental analyst calculates out the cause of the movement.
Foreign Exchange Technical Analysis
Forex technical analysis does not take into consideration the situation, but it works on the unemotional raw data. The analyst put importance on the recent history of the value of the concerned foreign currency and not on the news material. For a more vital analysis of the scenario, the traders may even stress on the currency worth for the entire month. Then, comes the step of preparing the charts based on the collected data. It reflects the tenure of progression or the trend in a better and more clearer manner. The trend or the pattern is typically discerned by putting into use accessories like Bollinger bands and moving averages. It even helps the traders to recognize the period when the currency experiences a deadlock. A deadlock or a state of congestion defines a period where the currency remains locked within a small range of values. This indicates that the currency remains in a low-risk form and hence much cannot be earned through the targeted value.
The Principles Of Technical Analysis
Market action affecting actual price – this indicates that the actual price of the currency is basically a reflection of the other things that are somehow related to the Forex market and can affect it in any way. Three of the main factors that are known to affect are demand and supply, market sentiment and the political factors. However, you should keep in mind that the real basis of making the technical analysis is by taking in concern the price movements and not the reasons behind the change.
Trend in price movement – technical analysis lets you to recognize the patterns reflected by the market behavior, that holds a very significant position in the overall matter. For many of the given patterns, it has been marked that they are capable of generating the anticipated result. It has also been noticed that there are certain recognized patterns that keep on repeating themselves on a regular basis.
Repetition in trends – the patterns established and categorized by the Forex charts for a tenure of more than 100 years. The manner in which the concerned patterns are repeated states in a clear manner that the psychology of human beings experience little change over time.
Five Categories Applicable In The Theory Of Forex Technical Analysis
1. Indicators or oscillators indicating factors like the Relative Strength Index.
2. Waves, to know more check out the Elliott wave theory.
3. Number theory, referring to the Fibonacci numbers and Gann numbers.
4. Trends, that can be recognised by seeing the moving averges.
5. Gaps, that can be measured by considering the highs-lows and the openings and closing.
Advantages Of Forex Technical Analysis
Some of the primary advantages of Forex technical analysis have made it a single sufficient factor that should be considered while following trends or making predictions. There is no need for you to become as expert as a political analyst or an economist. All you need to do is to be able to read graphs and capable of making plots. By studying the graphs in a proper way, one is likely to understand what is be happening tomorrow or in the coming week. You must try and practice Forex with such brilliance that after a few days, you may even not need to take the assistance of Forex technical analysis. But you should not forget to use its advantages to the fullest when it comes to dealing with high-risk security.