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Using Technical Analysis in Forex Trading

Using Technical Analysis in Forex Trading

Forex trading is the trading of foreign exchange on the global markets. The technical aspects of forex are mainly concerned with the events of the forex market rather than what can actually happen. A technical analysts studies the price and the volume movements of the market and with the help of such data that are derived from the various actions of the market players, creates charts and graphs. These are later used as the primary tool of Forex trading analysts. The technical analysts are not much concerned about larger aspect of the market but rather concentrate on the different activities of the concerned instrument's market.

The main principles on which the technical analysis is based upon are as follows:

– Market action discounts everything: the phrase means that the exchange price of the currency is actually the reflection of all the things that are known to the market and also all the factors that can affect the market as a whole. There are various factors that affect the market as a whole – the factor of supply and demand, market sentiments and other political factors. Technical analysts are mainly concerned with the price movements and do not deal with the reasons behind the changes.

– Prices move in trends: in the case of forex trading, the technical analysis is used for the identification of the patterns of the market behavior. This is a significant method of knowing the behavior of the market. For most of the given patterns, there is a high probability that the method will yield the expected results. However, there are also some recognized patterns that repeat themselves on a fixed basis.

– History repeat itself: the chart patterns are categorized and recognized for years and the patterns repeat themselves after a fixed interval of time.

According to the experts, the list of categories of technical analysis theory consistors of the following examples; Indicators (oscillators), Number theory (Fibonacci numbers, Gann numbers), Waves, Gaps (high-low), trends (following the moving average), chart formations (channels, head and shoulders and triangles).

There are also various indicators that are used for the forex trading. Some of the important indicators are as follows:

a) Technical indicators; there are a number of ways for the execution of the technical trading systems. The technical indicators that exist in the forex market either are used in isolation or are used in combination with the others.

b) Trend indicators; it is used for the information about the persistence of price movements in a single direction. The common method to spot the trend indicators are by "trend lines", "drawn below price lows" and "above price highs".

Other forms of indicators are – support or resistance indicators, volatility indicators, sentiment indicators, momentum indicators and the cycle indicators.

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