Technical Analysis in Forex Market
Technical analysis applies historical economic data to predict changes in the FOREX.
It is based on next assumptions:
- Price changes are a result of all market forces combined. Things that can impact currency prices include political events, economic conditions, supply and demand, seasonal variations and weather conditions. The analyst, however, is not concerned with the reasons for market movement, but rather, the movements themselves.
- Currency prices follow trends. A lot of market patterns have been recognized as having predictable consequences.
- 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.
Do you need Technical Analysis?
It's believed that most FOREX day traders rely heavily on technical analysis and they may use fundamental analysis to support their strategy. A real advantage of technical over fundamental analysis is that it can be used to many different markets and currencies at the same time.
The starting trader may be put off by the seeming complexity of technical analysis and wonder if it is essential for FOREX trading. But FOREX trading requires a strategy. Although any strategy is imaginable, technical analysis is a proven method for predicting changes in the FOREX. How sure is that? Well, nothing is certain, and currency prices are affected by a variety of forces. Therefore many traders use a combination of technical and fundamental analysis to draw their trading strategies.
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