Technical analysis is the study of historical price action with the aim of spotting trends and patterns and determining probabilities of the future direction of price.
Technical traders (also known as technical analysts) believe that all important information about price movements lies within the charts. They believe that by looking at historical price movements, one is able to determine the current trading conditions and potential price movements. How?
Technical traders look for similar patterns that have formed in the past and form trade ideas based on the belief that price could possibly act the same way that it did in the past.
Charts, or more specifically, price charts, happen to be the first (and most important) tool that every trader using technical analysis needs to learn. No matter their trading strategy, technical traders analyse these price charts in order to spot patterns, trends, find entry & exit points, predict price movement and more. These are the four most popular types of price charts used to trade foreign exchange:
Now that we have covered the definition of technical analysis, let’s discuss some of the most popular ways technical analysts identify patterns and make predictions about future price movements in the Forex market. These fall within the following three categories:
Continuation Patterns (task gap, white lines, mat hold, line strike, separating lines)
Bullish Reversal Patterns (hammer, morning star, three inside up, bullish engulfing)
Bearish Reversal Patterns (hanging man, shooting star, evening star, three outside down)
Forex technical indicators, or technicals for short, are an essential tool when trading the Forex market. These indicators provide traders with a better chance of making profitable trading decisions if used at the right time.
There is a wide variety of technical indicators out there to analyse trends, provide price averages, measure volatility, and they come in all shapes and sizes.
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