What is Technical Analysis?

What is Technical Analysis?

One method of the forex technical analysis is using technical indicators.

Technical indicators are graphical presentations of the prices actions, which is usually displays in the screen of your trading platform.

Technical Analysis is the way of predicting price changes of a financial instrument by analyzing prior price movements and looking for patterns and relationships in the price history.

The basic premise of technical analysis is that the price discounts all information available in the market and that patterns in price movements tend to repeat themselves.

Another important foundation of technical analysis is that price movement are not random but tend to trend in some direction most of the time.

Technical analysis is probably the most common and successful means of making trading decisions and analyzing Forex and commodity markets.

It consists primarily of a variety of technical studies that can be interpreted to generate buy and sell signals and predict price patterns and market directions.

It is a methodology that can be applied almost in any market.

Chart reading is successfully enhanced by the use of computer-based statistical analysis which creates oscillating indicators showing overbought/oversold conditions, the pace and direction of the momentum, and the relative performance of one item against another or against the market.

One part of this analysis is to analyze price charts and identify short-medium, and long-term trends, pinpointing future potential trouble areas.

“Bar charts”, “point” and “figure charts”, “candle charts”, “swing charts”, volatility and momentum or relative analysis are all tools that are available with a study of technical analysis and should lead to better investment performance, with a consistent and intelligent application.

Trade Forex and CFDs with Technical Analysis

Support and Resistance

The main idea of support and resistance is very simple, even for forex beginners for the goal to learn technical analysis.

Support can be imagined as a floor for the currency price and the resistance can be imagined as the ceiling for the currency price.

When the price goes through a resistance, that level becomes the new level of support.

The reverse is displaying when the currency price goes through a level of support.

The best usage of support and resistance levels is during trend trading.

If the trend goes up, a trader wants to go long at the support, and at the resistance, he takes a profit.

If the trend goes down, a trader wants to go short at the resistance and he takes Forex profit at the level of support.

The levels of support and resistance sometimes aren’t the exact levels of price.

Many times, they can be a small range of it.

Only if the Forex currency price clearly breaks old levels – support or resistance can be considered broken.

These levels need to be used as reference points when forex trader looks at the chart and try to make a right decision.

Support and resistance trading analysis can give the trader a not bad idea of where to put his take profit and stop loss orders.

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2 patters of market trend

Both described methods of free technical analysis are related on looking at the forex program’s chart and reviewing the recent history of a currency.

What to do if the price following a pattern?

What to do if it goes in the range?

No matter what currency price is doing, the price usually falls into one of those two categories.

If it is moving in one direction or in a pattern, a trader can use trend lines to think where the forex price will go.

If the price looks to be bouncing back and forth in a range, a trader can use support and resistance dates to make his notes of where the currency will change the direction.

No trading strategy is perfect

Forex technical analysis can be very good and useful, but like other forex trading methods, it isn’t perfect.

Traders’ decisions are always up to the distinction of the forex trader making them.

There are some very good indicators and technical tools which are extensively available for use in trading operations.

With so many people who use similar tools, even having different interpretations, technical analysis can be a self-fulfilling forecast.

If many traders see the same forex price area as a selling point, the price could bound as everyone makes similar moves.

The question always remains how permanent these moves will be and that is where personal discretion comes in.

Daily forex technical analysis and its methods can be different for each trader.

Every trader has their own point of view of where they see support and trends.

Traders also have their own ideas on how to set up their indicators.

These differences are saying that each trader should create their own trading system.

You can take 100 different forex traders and you will get 100 different trading systems which they use.

It is this difference that is making the forex market work.

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