If you are planning on investing in the forex market or are already doing so, you must have come across the confusion of when to buy or sell a currency. The forex market is highly volatile, and it can fluctuate in a matter of seconds. So, your decision of buying or selling a currency at the proper moment is important to make a profit. All decisions in forex are based on prediction and intuition, and this is where forex technical analysis plays a vital role.
Going by the book, technical analysis is defined as a security analysis method for predicting the movement of prices through the study of its past behaviour and trend. In simple words, you can predict how Euro will behave, go up in price or down, against the dollar in the next 24 hours by studying its trend and movements in the past 48 or 72 hours.
Forex technical analysis is based on some assumptions
- First, the market moves in trends. The price of a base currency against a quote currency is assumed to follow a pattern. This means, if that currency sets a trend, it is likely to follow the same direction in future as well. Like, if the price of a currency goes up 10 times in every 24 hours, it is likely to do so in the next 24 hours as well.
- Second, history repeats itself. Most forex technical analysis real time predictions are made based on charts and graphs that have been in use for hundreds of years. They still yield accurate results while predicting and analyse market movements perfectly. Some indicators in use are Bollinger Bands, Fibonacci retracement, moving averages, etc.
Forex technical analysis method can be used to reap profits.
Understand this with an example. Say you decide to trade with USD 100,000 and plan to buy Euros. Assume current market price is EUR: USD = 1.36. So, with USD 100,000 you can buy around 73,530 Euros (approximated). Why did you go for Euro and not for Yen? It is so because proper forex technical analysis methods predicted that Euro is likely to gain pips over the next 24 hours. If the market quote became 1.38 rising from 1.38, selling 73,530 Euros will fetch you USD 101470.5. That’s USD 1470.5 in profit in 24 hours.
Take another instance. Instead of rising, say the quote fell to 1.34. Instead of waiting for the quote to rise again, you sell the Euros off and wait for the quote to fall more. When it hits 1.32, you buy more Euros with the acquired money because forex technical analysis tells you that Euro will follow a trend and soon rise to 1.38. Perform your calculations and see how much profit you can make.
Precise and accurate analysis takes years of historical trading data. Performing forex technical analysis live is even more complicated and requires proper computer software to generate graphs and formulate the market movement based on the same. These are generally carried out by large banks and dedicated team of brokers with all the necessary equipment. So, don’t just invest blindly. Opt for proper analysis and invest judiciously.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.