Forex Technical Analysis

Are you interested in forex technical analysis, but aren't sure where to start? While this is a topic which you can spend years studying, the good news is you can grasp the basics in a matter of minutes. Technical traders believe that past market action can often predict future movement, and this is the entire basis for this unique approach.

In contrast to fundamental analysis, which factors in political climate, economic conditions and even psychological elements, technical adherents believe the price already reflects this information accurately. Thus, you can ignore these other considerations altogether, and focus solely on the price itself. In fact, even those investors who favor the fundamental method, often consult technical tools to ensure they get a good price on their orders. So, to help you discover what this trading technique can offer to you, let's examine it in more detail below.

Forex technical analysis assumes that the market moves in predictable ways, which you can uncover through historical study. By looking back through price data from previous years, and applying sophisticated technical indicators, you can craft a cohesive trading strategy. These are based upon signals, which are triggered when certain preset conditions are met. Often the best forex trading platforms have many excellent indicators available, making it easier than ever to create your own custom approach!

Also, the technical method believes that you can spot the difference between a trending and choppy market. Why is this important? If you can capture the trend, and invest at the beginning of a sustained move, you can hold your position for the entirety. This can build a substantial level of profit in a matter of days, and sometimes even hours!

In fact, as a technical trader, you will spend a great deal of your time trying to spot a current or future trend. The reason for this is as mentioned above; smooth price movement in one direction is the best way to earn large profits. Also, in a market which is moving sideways with no clear direction, you will often lose money. Why is this? During these choppy phases in the forex, the price will move somewhat erratically. This can trigger several false signals, causing you to get in right as the market reverses direction. Therefore, it is important to use the best forex trading platform you can, to build a quality system which will protect you from this type of damage.

One category of indicator which has been used for years to predict this kind of dangerous market condition, is volatility. This will give you an idea of how many investors are currently trading, and can give you insight into whether a sustained trend is likely. Several types are popular, but Bollinger bands are perhaps the most useful. These will give you a running visual as to the number of traders currently participating, which can alert you if choppy action is probable. The best trading platforms will have these included, and will offer many different ways to customize them as well.

Also, forex technical analysis relies upon areas of support and resistance, to create trading signals. For example, a common principle is that a triple top will never stop, as a resistance price is tested repeatedly. Often times, if the price hits a previous high three times in a row, it will break through this resistance point. Having this type of knowledge will help you to get in early, before the new trend is established! These important zones can be located using trend lines, which is a powerful tool in any technical trader's arsenal.

Trading platforms will provide other valuable indicators as well. These include Fibonacci retracements, various moving averages, Elliot waves, and stochastics. Moving averages will help you to spot potential trends, giving you another clue to add to your overall picture. Also, many technical traders believe that the market moves in cycles, which are repeating patterns based on underlying events like the seasons of the year. Elliot waves will assist you in keeping track of these cycles, and can give you more information so you can make better investment decisions. Finally, charting common currency pairs, such as the US Dollar and British Pound, or the Euro and US Dollar, can improve your market insights as well.

So, in conclusion, forex technical analysis has many benefits to commend it, and it can help you uncover opportunities for profit! The best forex platform will give you the trading tools which you need to find success with this approach. These include key indicators like Bollinger bands, trend lines, moving averages, and Elliot waves. With the valuable information these can provide, you can craft a custom trading strategy, and you may begin seeing the profits you've been looking for.