Real-time technical analysis of the foreign exchange market is one of the most effective ways of market research. It is a prediction of the movement of the price of an asset based on an analysis of past movements. The technique allows you to track exchange rate fluctuations in the past and, taking into account the data received, determine where the chart will go - north or south. A feature of the technique is that the price is investigated solely on the basis of its movement. A comprehensive technical analysis of the currency market does not include an assessment of fundamental factors that could cause quotes to move in a certain direction.
Fundamentals of Technical Analysis
The basis of technical analysis is the tandem of interrelated activities that allow you to determine the subsequent trend movement with maximum accuracy. The use of one tool in the framework of technology, in particular one of the indicators or only support and resistance lines, is not effective. Comparing data for several instruments allows you to make the most accurate forecast. Assessment of the market situation is based on several parameters, such as changes in value, volume of transactions, number of open positions. The dominant parameter in assessing market movement is always price, the remaining values considered only complement the picture, confirm the forecast made.
Basic principles of analysis
Real-time technical analysis of the foreign exchange market is based on three main principles that not only a professional, but also a novice trader should know:
- The foreign exchange market in its movement takes into account absolutely everything. The price chart reflects political and economic factors. For example, the lifting of EU sanctions from Iran on the supply of oil to the international market or the payment of EU debt by Greece can be attributed to powerful stimulants of the movement of currencies.
- Trends are systematically repeated. From time to time, the price will draw identical shapes called patterns. This is due to the fact that, despite the changing world situation, the psychological factor never changes, and traders in most cases use patterns of behavior in the market. To say more, traders are used to reacting to certain news the same way. Knowing the reactions of market participants, you can open and close positions in a timely manner.
- At the heart of any movement is a trend. Real-time technical analysis of the foreign exchange market is simply not possible without identifying the main market trend. If chaos reigned within its framework, there would be no question of any forecasting, and even more so of earning due to speculation on prices.
Basic concepts in technology
Real-time technical analysis of the foreign exchange market is based on basic concepts. It is impossible to start a situation analysis if you do not understand the trends. In total, there are three formats for market movement:
- Bullish trend (or uptrend) - the price is moving up.
- Downtrend (or bearish trend) - the price is directed downward.
- A lateral trend (or flat) is a period of stagnation in the market, a certain moment of uncertainty. The price moves in a narrow price corridor, and market participants are only thinking about which way to open their positions.
Let's pay attention to the fact that each of the trends in its pure form is a rarity in the market. Any movement of quotes is accompanied by pullbacks. Beginners are advised to trade only with pronounced trends. Even professionals are wary of flat market conditions, since probable profits are not justified by high risks.
Technical Analysis Tools
The following can serve as technical analysis tools:
- bar charts;
- indicators;
- Oscillators
- channels
- waves
- graphic shapes.
Each of the tools has certain advantages. A detailed understanding of each functional will allow you to analyze the situation and make the right decision. You should not be guided by only one instrument, since its signal to complete a transaction may be false. Another thing is when at the same time several instruments show identical signals, which opens up broad prospects for earnings. Previously, technical analysis tools were not automated, as they are today. In order to analyze the situation, you had to draw charts with your hands and carry out calculations. So the study of each tool is not so difficult, but it is absolutely necessary.
Technical Analysis Figures - The Most Reliable Patterns
Within the framework of technical analysis, there are well-established patterns that are determined by the behavior patterns of both large market participants and small ones. They are embodied in the format of certain graphic shapes. An example is a flag and a double top, a triple bottom and a head - shoulders. As soon as the figure looms on the chart, and the price passes a certain line, we can confidently talk about the further direction of movement.
What are the figures talking about and why are they needed?
Note that there are patterns of the continuation of the trend and trend reversal. The frequency of occurrence of such patterns on the chart is different depending on the time period and on the instrument being traded (currency pair). The percentage of working out of such patterns can be from 80% or higher. It is not enough to understand the theory. Technical analysis of the online currency market based on graphic figures should be accompanied by practice. Only by trading for a long time, you can learn to see patterns and use them to your advantage. In practice, any figures will not have such a clear and concise appearance as in the pictures.
Technology Advantages
Technical analysis of the Forex currency market is the basis of the basics with which each beginner begins to get acquainted with the foreign exchange market. Experienced players use the technique as a tool to analyze the behavior of beginners. So, inexperienced traders often make decisions, starting only from emerging lines of support and resistance. Knowing this, large players can predict the direction of movement due to the mass decision, which allows them to occupy the most advantageous positions. It is not for nothing that there are statistics according to which only a few percent of participants earn in the foreign exchange market. There is even a theory that, acting contrary to the signals of technology, you can get a solid income, but many will challenge this issue.
Understanding Technical Analysis - A Step Towards Successful Trading
Although the basics of technical analysis of the foreign exchange market are basic, they cannot serve as the only tool for building your trading strategy. Effective trading happens only when fundamental analysis and computer analysis are used in addition to technology. You should not use all the tools of the technique at the same time, as this will only overload the chart and lead to confusion in the signals. Experts recommend that beginners study in detail one instrument in each type of market analysis, depending on the most acceptable trading format. This approach will avoid losses and losses, will bring good trading results.