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Home : Forex 101 Classroom : Technical Analysis

Technical analysis in Forex trading

What is Technical Analysis?

Technical Analysis is an effort to forecast price movements by analyzing market data such as historical price trends, volumes, open interest, etc. Technical analysis is conducted based on the principal of 'history repeats itself', it does not result in absolute predictions about the future.

Instead, indicators generated by technical analysis will help investors anticipate what is "likely" to happen to prices over time.

Ever heard of Japanese candle stick? Fibonacci numbers? Relative Strength Index? Moving averages? Pivot points? Elliot Wave? These are some of the charting method that FX traders like to use during trades.

Technical Indicators in Forex

Unlike fundamentals, technical trading relies heavily on graphs and charts. Practically, a technical trader will need at least one charting software to read and plot the related charts for his own references.

As in our case, we will include some common technical indicators in Forex trading as well as its brief explanations. Charts and graph examples will be provided from time to time for the usage of learning.

List of major technical indicators in trading.

Limitations on Technical Tradings

Technical analysis looks secure with proven tracks in the past times, however, trading Forex purely based on Technical Indicators would be extremely unsafe as we all knew thatt 'future does not equal to the past'.

A lot of unexpected variables are not considered in Technical Analysis: change of country leaders, change of government, natural disasters, change of bank policies, investor’s mood, war, or even terrorism attacks migh affect the currency value dramatically. These incidents are most likely not happening in the past thus Technical Analysis is not effective enough to predict the price movement.

Trading Forex Purely Based on Technical Analysis

A combined of two approaches (Fundamental and Technical) is always encourage to get the optimum plots on your investment plan. Read about Fundamental Analysis in Forex trading here.

Next, we will take a look on how to get started in Forex trading.