Forex Education: Technical Analysis & Technical Indicators

Technical analysis is one of the crucial aspects of forex trading. It is a type of market analysis that forecasts the future price direction according to the market's past price history. Technical analysis studies are based on the volume and price data. Analysis helps you make inferences about future market performance using data on historical market activity. There are three primary ideas on technical analysis:

1. The market discounts everything. All the information is already reflected in the market price.
2. Price moves in trends.
3. History is likely to repeat itself.

Through technical analysis, you should be able to see market situations that often repeats themselves. There are two methods to do this:

1. Chart analysis or charting – Here, you focus on identifying the price patterns that repeatedly occur and find market trends.
2. Statistical approach – Technical indicators exist to predict a likely future trend.

These forecasting methods can help you be aware of market risks. Understanding the approaches in technical analysis should help you acquire the skills necessary to make better investment decisions. Technical analysis itself is a broad area, so you should take time to carefully learn its concepts and tools that professional and modern investors use to predict the movement of the market.

Forex traders must understand the basic concepts of technical analysis as well as the commonly used terms like support, channel, resistance levels, and trend. By using information from the charts, you might be able to identify the right moments for position entry or exit, and identify and predict when a trend fracture may occur or its continuation.

The trend is among the most basic concepts of technical analysis and it is based on the assumption that a market participant makes decisions in herds, resulting in sustainable asset price movements for a period of time. The highs and lows of a trend are identified by resistance (highs) and support (lows), and these levels are areas where traders can usually buy or sell an asset. The channel is a key notion of technical analysis and it is the sustainable corridor of price fluctuations that come with a constant width.

Trading chart patterns define the market trends and turns. By knowing the chart pattern, it will be easier to determine conditions where a market may tend to break out. Graphical formations will make it easier to determine whether a price is likely to proceed in its direction or go on reverse. Technical indicators are important in technical analysis because they let you predict future market movements to orient you in the market. Favorable indicators are those which have been proven to work in the past, but other traders may prefer to experience new indicators. Some of these indicators are those that were coined by Trend and Volume indicators, Oscillators, and Bill Williams.

Araik Zohrabyan is the Public Relations Officer at IFC Markets He provides current and summarized information to enhance business awareness.