Everything that happens in the world in the political and economic sphere will inevitably affect the foreign exchange market. Including an external factor in their forecasts, the trader has a much greater probability of a correct forecast.
However, one must understand that we are talking about the forecast, neither more nor less. The market can behave completely in an unpredictable scenario, and all the calculated probability - both logical and calculated using various special tools, will be incorrect. Nevertheless, traders need to study market patterns for successful Forex trading.
Technical analysis of the Forex market is quite multifaceted. A lot of tools are used in the form of indicators, programs, and more. Various types of assessment are used, including candlestick, graphic, summary technical analysis of Forex and others.
What is technical analysis?
Forex technical analysis is the main way to research it and consists in predicting price movements based on previous fluctuations. It is mainly used to track prices on currency and stock exchanges. You can track fluctuations in value and calculate its likely rise or fall through technical analysis of the Forex market. Books about Forex are quite popular, a huge number of articles have been written on this topic. And this means that interest in him does not fade away.
Forecasting is built on the analysis of price series in their time period. Other statistical information is also used. The tasks of technical analysis include only considering the direction in which the price is moving, without taking into account the causes of this phenomenon. The correct definition will help you choose a position that generates income in any market, including Forex.
Axioms
- Price Information Reflection
We are talking about the information necessary to analyze the price, which is included in the auction. According to the price behavior, a market forecast is built. External analysis is not needed for technical analysis, which greatly facilitates its preparation.
This axiom means that in their movement, prices have a certain regularity. Therefore, they are divided into rows for a certain period of time during which they change in any one direction. The graphs look wavy and consist of peaks of ups and downs. Based on this, 3 main trends are distinguished: upward (rising price), downward (falling price) and lateral (constant price).
Each event in history in general, and in the foreign exchange market in particular, tends to repeat itself, in view of the fact that the parties involved treat it the same way. Therefore, one who is familiar with the past can also understand future development. Thus, when studying the situation on the market, you need to find the same one that was already in the past, which will allow you to draw the right conclusions about further development.
Technical Analysis Tools
Assessing the information obtained after conducting a technical analysis, the trader begins to make a forecast using various tools, which are described below.
Fibonacci levels
Levels consist of lines dividing into parts called grids. Thanks to them, waves are tracked, and if you learn to use it, the most profitable places for entry and exit will be visible. One of the grids is called correction, thanks to which the trader tries to calculate to what level the price will reach. Another grid is the target, through which the wave motion is calculated.
Forex Technical Analysis Indicators
Bill Williams Trend Oscillators and Volumes
Indicators: zigzag, ADX, CCI, ATR, Alligator, Fractals, Ichimoku Kinko Hyo, Moving Average , Bollinger Bands, Parabolic SAR, Bears Power, Standard Deviation, Envelopes, Bulls Power, Bears Power, Relative Strength Index, Stochastic Oscillator, Relative Vigor Index, Williams Percent Range, MACD, Force Index, Momentum, Awesome Oscillator, DeMarker, On Balance Volume, Market Facilitation Index, Acceleration / Deceleration, Money Flow Index, Gator Oscillator
However, using only indicators in practice, it rarely turns out to trade successfully. This is because they are simply unable to predict, and can only show the situation of the present moment.
To use them in trade, of course, you can just clearly understand what they can and what not.
Therefore, the most effective tool will be the combination of all methods of forecasting price movements.
Programs
To help the trader, special programs for Forex technical analysis are issued. When using them, you need to take care of constantly updated data for currency pairs. This data, as a rule, consists of periods that should be taken into account in order for the technical analysis of the Forex market to be successful.
Also, programs should support those indicators that the trader is going to watch.
Programs can calculate Fibonacci levels and compile information and price charts. In addition, some of them are able to save chart templates and, if necessary, apply them; receive a chronicle of data on exchange rates; sign charts.
What is fundamental in technical analysis
All information is reflected in the Forex price change. The basics of technical analysis come from the price and volume of trading for a certain time. Based on the price behavior, future market development forecasts are made. No external factors are needed here. Therefore, the forecast is built quite quickly and with a high probability of accuracy.
Prices are moving according to certain trends. It means that the price is not random, but subject to trends. Therefore, the price movement in time is divided into certain intervals, where it moves in some direction. This is why the graphs are in the form of waves, which are composed of peaks of ups and downs.
Everything in the world is repeated - both the history of mankind and the history on the Forex market are cyclical. Therefore, knowing about past situations, one can most likely predict future fluctuations. Forex technical analysis figures were developed precisely on the basis of this axiom. The first such method was the "Japanese candles", which were first put into practice by rice traders.
Japanese candles
The history of the invention dates back to the seventeenth century. Charles Dow applied it to the market, using basic principles. Another financier later developed their graphic model.
A simple chart with changes that occur in the market can be used both separately and in conjunction with a line chart. Thanks to its visibility, it quickly gained popularity among traders around the world. And from the nineties of the last century it was considered a universal method for demonstrating the position of the financial market.
Graphical analysis
There are many methods used in the foreign exchange market. The main one is graphical analysis, based on the construction of graphs that demonstrate price behavior in the formation of certain figures. There are different types of figures: continuing - consisting in the assumption of movement in the same direction as in the figure, direction; reversal, indicating a change in trend and so on. This method is quite effective and convenient, but is not accurate.
FOREX Technical Analysis Figures
With the help of the figures, they make forecasts about market movement: continuation or reversal. According to these parameters, they differ. Figures can be of one or both types at once. And the trader needs to determine the type of Forex technical analysis figure in order to calculate further price behavior.
When plotting and determining the type of figure, one should not forget about the possibility of error. Therefore, traders who trade on Forex for a long time, use several indicators for fidelity and reliability.
Most likely will be the signals of the figures, which are based on large periods of time. Although they are used in the short term.
With the correct definition of the figures, the trader has more chances to anticipate the situation in the financial market and the time to prepare for them.
The most famous figures: Triangle, Triple Bottom, Diamond, Wedge, Double Peak, Triple Bottom, Triple Top, Flag, Double Bottom, Pennant, Saucer.
Summary technical analysis
Forex technical analysis is a mathematical calculation of the movement of the capital market, an assessment of statistical data on certain assets.
The data here are Forex quotes, which also include currency pair rates and trading volumes.
The objective of this analysis is to predict the change in the price of an asset over a specific time period.
The application of this analysis will prove itself in short trading positions, where the correct forecasts will come true for traders. They have at their disposal a large number of complex mathematical tools, most of which are the so-called lagging indicators, which are calculated based on recent prices. Having learned to use these tools competently, it will not be difficult to make a forecast.
However, such ready-made solutions must be treated with caution, because, relying entirely on machine calculations, trading can become thoughtless. Without understanding the essence of the Forex market and using the proposed mechanisms automatically, it is unlikely to be able to make stable income on Forex.
Technical analysis methods
The most difficult forecasting method is mathematical. It is based on different formulas and algebraic calculations. Based on this method, market indicators are built. Two directions are distinguished: flat and trend.
In the trend direction, the line crosses the entire chart using the calculated formula. Depending on the level at which the time series of prices for this line is located, forecasts are made on how the foreign exchange market will be built. The main thing here is to find a formula in order to build a trend. Flat, or sideways trend, is to build a line indirectly showing proximity to price extremes.
Both methods, depending on the scale, can be similar to each other, and therefore it is rather difficult to find the point from which the reasoning will be built.
Another method, called cyclic, is based on the theory of the same name. On it, changes occur regularly in cycles, like day-night. According to this theory, even trading systems are built, for example, Forex trading robots that give the trader advice on buying, or, conversely, selling currency.
Based on the foregoing, you can get an idea how to do technical analysis of Forex. It helps to predict prices, providing the trader with income in the foreign exchange market.