Forex Technical Analysis

Forex Technical Analysis
Technical Analysis is one of the most popular ways to analyze market trends. It basically consists of the analysis of historical prices and patterns to try to predict and anticipate future movements.

[caption id="attachment_520" align="aligncenter" width="308"] Forex Technical Analysis[/caption]

The technical analysis in Forex is based on the fact that all the information of what happens at the moment in the market is reflected in the current position of the price of the currency with which it is wanted to negotiate. Therefore, all that is required to make trading decisions is to study the price action.

The key point of this type of analysis in Forex is to know that the markets are predisposed to the trend and knowing these trends in its early stage is the key to succeed with technical analysis.

The main tool is the graphs that identify trends and patterns for finding or waiting for changes or fluctuations in the currency that generates benefits. It also uses support and resistance lines as important tools.

Strategies in technical analysis are based on mathematics, statistics and logic. According to the observation, this analysis is what determines, taking advantage of the tendencies of the mass, the direction that will possibly take the currency in the future. That is, taking facts from the past to predict the future of market reaction.

Advantages of Forex Technical Analysis

• It is the most followed by most Forex traders.


• Once learned does not require hours of study of the graphs, which makes it an advantage for those who do not have time to devote hours to the analysis of the market.


• Generally works well for those who work because the foreign exchange market tends to develop strong trends.


• At the same time, several currencies can be tracked, as it is not as overwhelming as the fundamental analysis, in which one has to specialize because of the exaggerated amount of data that must be known to be successful.


• Knowing and mastering technical analysis can work with any other type of currency, since the tools are the same and the rules can be applied easily to any time frame or negotiable currency.


• It does not depend on the need for economic events in the market to operate.


• It is a technical analysis is versatile, it is used for all types of currencies, as well as for commodities, raw materials, energy, stocks, indices, ...


• You do not need to be an economist to practice technical analysis, you only need to be able to identify the patterns and trends in the graphs.

Basic Principles of Forex Technical Analysis

In this technical analysis strategy there are basic fundamentals to do trading, they are:

• Support lines: It is a price area where it is considered difficult for the price to fall even further from that point. Knowledge of these lines is essential for a successful analysis.


• Lines of Resistance: It is the opposite of support, that is, a resistance is a level of the graph where prices stop their rise and fall, because the prices of the seller are more important than those of the buyer.


• Trends: A trend occurs when you take the average price of a variable currency for a certain time. This is useful to the trader to observe and compare the cusps of the rising or falling price lines.


• Setbacks: It is when prices retract slightly from the current trend before returning to their original direction, they are movements against the trend, but they tend to rewind a predictable percentage as well. For example, setbacks of 33%, 50% or 66% are known.


• Channels: It is when prices move in two parallel trends. Technical analysts use this for you when the price touches the minimum buying trend and when you buy the maximum trend sell.


• Graphs: It is the most used instrument in the technical analysis. They can be used to represent the evolution of the price in the market and to predict future prices.
  
  As we will see in the following article (Forex Chart Types) of this Forex course, three types of charts are mainly used:


• Line graphs


• Bar charts


• Graphics of Japanese candles

Main Indicators of Technical Anáilsis

• Mobile Averages


• Bollinger Bands
  Parabolic SAR


• MACD


• RSI Oscillator


• Graph of volume, volatility and stochastic.


• Commodity Channel Index Indicator
  Momentum


• ATR (Average True Range)


• Distribution of Accumulation


• Arms Index (TRIN)


• ...
  

  Recommendations for applying Technical Analysis in Forex

  
  

Several aspects need to be considered in order to apply the technical analysis.
For example with regard to graphics. They can be used with intraday intervals (every few minutes), per hour, per week or per month.
It depends on how long you want to stay in that position, for example if you are going to operate a few hours you will want to see the graph for 5 or 15 minutes.

If you want to stay in a position for several days it is recommended to see graphs with a larger margin.

Anyone who decides to operate with technical analysis should know that this is a useful strategy especially for short-term investments, since this non-fundamentalist strategy is based on identifying patterns in an established period of time.

Although the technical analysis is a strong tool to invest, the analyst requires constant updating, because there is a possibility that what has been successful today, tomorrow will not and that will depend on the news that move the market for what That it is a challenge and good practice for the trader to keep abreast of the strategies and what is happening in the world of economics.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.