Technical Analysis

Traders tend to be categorized by the type of analysis they use to trade. There are two main types of analysis. Technical analysis, and fundamental analysis.

This section focuses on technical analysis.

Technical Analysis is the forecasting of future price movements by studying historical price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis helps traders anticipate what is likely to happen to prices over time.

Charts, created from historical records of price movements, are the main tool used in technical analysis.

Technical analysis is built on three main principles:

The market discounts everything This means that the price of a currency reflects all important information that is known to (or expected by) the market. For instance, if the market expects the US Federal Reserve (the Fed) to reduce interest rates, technical analysts advocate that this expectation is already built into the current price of the US dollar.

Prices move in trends A trend refers to the sustained direction of prices. Over a period of time, prices may move either up or down (or sideways). Rising prices constitute an uptrend; falling prices constitute a downtrend. 'The trend is your friend'. That's a term you will hear throughout your trading career. The term implies that you are much more likely to make money when you trade in the direction of the current trend. Technical analysis can help you identify these trends in their earliest stages and therefore provide profitable trading opportunities.

History repeats itself Forex charts have been used for over 100 years. Technical analysts advocate that history repeats itself, and that human psychology changes little over time. Technical analysts use historical charts to predict future prices. Traders use a multitude of technical analysis tools. These are normally referred to as technical analysis indicators. Our strategy uses only a few simple indicators. These are adequately explained in our Higher Learning section. Only a basic understanding of those indicators is required. The charting software will generate the indicators automatically and plot them on your chart.