The (Foreign Exchange) Forex Trading Market Explained.
 

 

Introduction to Technical Analysis - 1

FOREX technical analysis uses historical economic data to predict movements and is critical for Forex trading strategies

FOREX analysis is divided into two types: Fundamental and Technical.  Fundamental analysis attempts to predict movements in currencies by examining current political and economic events.  Technical analysis uses historical economic data to predict movements in the FOREX.  These two articles will examine the principles of technical analysis and the tools involved.

forex trading strategies technical analysis

Basic Principles

Technical analysis is based on three assumptions:

1 – Price movements are a result of all market forces combined.  Things that can affect currency prices include political events, economic conditions, supply and demand, seasonal variations and weather conditions.  The technical analyst, however, is not concerned with the reasons for market movement, but rather, the movements themselves.

2 – Currency prices follow trends.  Many market patterns have been recognized as having predictable consequences.

3 – Price movements follow historical trends.  FOREX data has been collected for over 100 years and patterns have emerged over time.  These patterns are based on human psychology and the way people react to certain sets of circumstances. 

Is Technical Analysis Necessary?

Most FOREX day traders rely heavily on technical analysis and may use fundamental analysis to support their trading strategy.  A major advantage of technical over fundamental analysis is that it can be applied to many different markets and currencies at the same time.  Fundamental analysis requires in-depth knowledge of the political and economic conditions of a certain country; therefore it is less likely that any one trader can do proper fundamental analyses on more than a few countries. 

The beginner trader may be put off by the seeming complexity of technical analysis and wonder if it is necessary for FOREX trading.  As with any investment, FOREX trading requires a strategy.  Although any strategy is possible, technical analysis is a proven method for predicting movements in the FOREX.  Does that mean it's a sure thing?  Nothing is 100% certain, and currency prices are affected by a variety of forces.  This is why many traders use a combination of technical and fundamental analysis to plot their trading strategies.

Availability

Every FOREX online broker should provide access to a wide variety of charts for technical analysis.  Some charting software is available free of charge while in-depth professional charts may carry a monthly fee.  Charts can be viewed by various time scales and provide detailed information about price movements as well analytical overlays.  Charts can be zoomed in to the tick level or zoomed out to see the broad picture over a period of months or years.  Charts are updated in real time.

FOREX charts may be available on your broker's web site or may be included as part of their trading software. 

Before beginning in FOREX trading it is a good idea to become accustomed to market behavior by following charts for a period of time and studying their movements and learning about trends.  Many brokers provide practice accounts that can be used by beginners to place 'paper' bids – no real money is exchanged.  These practice accounts familiarize the beginning trader with FOREX charts and market movement while at the same time allowing him to become acquainted with the trading software a particular broker uses.

Part 2 of this article will look at the various kinds of charts and technical indicators.

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Introduction to Online Forex Trading
Current Forex Currency Rates
Forex Trading
How to Get Started In FOREX Trading
FOREX versus Futures Market
FOREX versus Stocks
FOREX Trading Philosophy
FOREX Tools
Fundamental Analysis In Forex Trading
Forex Technical Analysis - Part 1
Forex Technical Analysis - Part 2
FOREX Trading Strategies
Trading Currencies on Margin
Currency Option Marketplace
FOREX Signals
How to Read FOREX Quotes
Calculating FOREX Profits and Losses
Risks of FOREX Trading
FOREX Training
FOREX Trading Software
FOREX Brokers
FOREX Glossary
Forex Updates and Training
Crash Course in Forex Education
How to Recognize Patterns in Forex Trading Markets
Defining Exotic Currencies and Their Impact on Forex Markets
Defining Trading Trend and Ranges in Forex Trading
Mind Games – The Psychology of Forex Market Trading
Crossing Currency - What’s This Mean to Forex Traders
Money Management Basics for Forex Traders
Choosing Your Forex Broker
Expensive Beginner Forex Trader Mistakes
The Elliott Wave Theory for Forex Markets
Failsafe Facts to Guarantee Failure in Forex Trading
Five No Nonsense Strategies in Forex Trading
Global Expansion and It’s Reaches within the Forex Market
Hedging in the Forex Market
The Important Ways to Keep From Losing in the Forex Markets
An Overview of the Euro’s Performance in the Forex Markets
Six Trading Tips for the Forex Newbie
The Lowdown on Day Trading
Interpreting How Interest Rates Drive the Foreign Exchange Markets
The Basics of the Bollinger Band Technical Indicator in Forex Markets
Relative Strength Analysis in Forex Trading
The Basics on Understanding Forex Options
Forex Charts – What Are They and How Do You Read Them
Interpreting the Future of the Oil Marketplace and How It Affects Forex Trading
Top Five Economic Indicators that Drive Forex Trading
Rules for Trading in Forex Markets
How Does the Japanese Yen Stack Up Against the US Dollar in Forex Markets
Pivot Points in Forex
The Ins and Outs of Trying Out a Forex Demo Account
The Top Currencies to Watch in the Forex Trading Game
Defining Moments Regarding Trading Trends and Ranges with Forex
Top Ten Basic Terms in Forex Trading and Their Definitions
Forex Folklore Investment Myths in the Market
Five Economic Driving Forces that Influence Forex Trading
Day Trading All You Wish You Did Not Have to Know
Time line for Daily Forex Trading When are the Optimum Moments
Forex Relative Strength Analysis
How Forex Quotes Can Influence your Trading Tactics
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