Have you ever heard historical events can predict the future? Surprised! Well, that’s what happens in this enormous market of foreign exchange. Let’s make it easier. In forex, if you wish to open an order, you just cannot do that based on what the news reader said in the evening bulletin. Here, technical analysis of forex plays a major role in balancing your chances of profit and making a loss.
Core concept of technical analysis of forex trading:
Technical analysis forex trading denotes prediction of future of the forex market based on previous data, happenings or any existing historical trend. Analysts tally the current price chart with the previous ones to find similar patterns that might possibly happen in the future as well.
Example – Suppose, if Australia continues to purchase resources of USA, they will obviously have to buy US dollars. Now this will, in turn, raise the currency’s demand and in turn its valuation. An analysis will help you to understand these facts. Investing a trade randomly without consulting trends in the price chart will land you up in a huge loss. Hence, technical analysis of forex trading will give you a fairly accurate idea of where the market is going and where your possible chances of winning are.
Don’t go by the arguments!
You might come across arguments like historical data cannot predict the modern market. True that with technical analysis forex trading, you might not get 100% accurate results, but if done correctly, you would get best possible speculations and earn maximum profit.
In fact, considering the increasing complicacy in the modern market system, this technical approach has been accepted as one of the most effective tools for profitable returns.
Now, there are different types of price chart patterns used in technical analysis of forex trading like –
- Head and Shoulders
- Engulfing pattern
- Cup and Handle
- Ichimoku Cloud Bounce
- Triangles, etc.
Indicators of technical forex trading:
In this context, you should also know that traders use certain indicators as tools for technical analysis forex trading. Some of them are:
- RSI or Relative Strength Index
- MACD or Moving Average Convergence Divergence
- Stochastic Oscillator
- Forex Gaps and Trends, etc.
Directional Movement Indicator (DMI) is a very popular and widely accepted technical indicator in technical analysis forex trading for monitoring whether a currency pair is trending or not.
You can follow the book ‘grain trading basics of fundamental and technical analysis’ to get a further detailed idea on forecasting and more.
3 assumptions of technical analysis:
#1. Price has everything:
Analysts of this forex trade technical analysis believe that prices contain all that information required to predict the future movements. So, in one word, they rely more on facts than opinions and hopes. As an aspiring trader, you must also learn these skills to succeed.
#2. History is believed to repeat itself:
Prices move in a cycle and hence are quite easily predictable in technical forex trading. What has happened before will possibly repeat; i.e. you need to follow the previous patterns and trends, and then analyse what’s coming ahead.
#3. Price movements follow trends:
The third principle that experts of forex trade technical analysis believe is that price movements cannot be random or fluctuating. Rather, it follows a trend and once this pattern gets established, the market for a while will follow that very direction.
So, as you can guess, a proper technical analysis of forex can give you next-to-accurate picture for a win-win investment venture. Learn and flourish. Good Luck!