Application of Technical Analysis in Forex

Technical analysis is a set of charts showing price changes. This type of analysis is fairly simple; for example, wave analysis is more difficult to conduct. Therefore, technical analysis is suitable for beginner investors.

The point of technical analysis is that data on past exchange rates and trading volumes are examined, and on their basis a forecast of currency rate changes is made. To monitor rate changes, charts are constructed and formulas are used. They also make it possible not to miss the moment to execute a successful buy or sell transaction.

Technical analysis takes into account both events that have already occurred and those that are only forecasted. The price change chart is compiled taking all factors into account. They combine together and a derived vector is produced. Forex analytics operates with daily, weekly, or monthly technical analysis.

What is the essence of such analysis? Without forecasting market movements, it is practically impossible to develop a strategy for behavior on Forex. And a trader needs to react quickly to changing conditions, otherwise they may miss the right moment to make a profitable trade. A forecast made on the basis of technical analysis makes it possible to decide whether to open a position and how much capital to allocate to it.

The Forex market is characterized by a methodology based on studying the patterns and nature of price behavior. The same rule applies to futures.

In technical analysis, two main methods can be distinguished – graphical and mathematical. Besides them, there are many other tools. They are based on the idea that analyzing time series of prices and ordinary trading volume will allow identification of recurring trends, which can then be used to forecast market behavior.

Technical analysis does not consider the causes of price changes. The basis for constructing charts is the fact that the price is already moving in some direction.

It is possible to earn a profit in any market if you identify the trend in time and open or close a position. Modern technical analysis is based on the Dow-Jones axiom. Its main provisions:

1) All that is required for forecasting is the study of the price chart. Other factors affecting the price are already taken into account by the market.

2) Prices change according to certain trends. Identifying these trends should be done by plotting charts of price dynamics.