Forex Technical Analysis Explained
The two main tools for analyzing foreign currency price fluctuations are technical analysis and fundamental analysis. This short article explains in broad terms what technical analysis is and how you can use it in your foreign currency trading.
The tools of forex technical analysis are the charts. The charts show the history of a currency price over a specified period of time. So that means the charts show what actually happened to prices, not what somebody thought should happen. Go here for more on technical analysis and other valuable information about forex trading.
Currency prices react instantly to many different factors, and the charts trace what these reactions have been in the past.
We’ve all seen great drops and spikes in stock prices because of an earthquake, a change in political regimes or other world events. There’s no actual reason for many of these stock price changes, but the perception is what drives them. The important thing to remember is that the charts show what happened to the prices, regardless of what caused it.
The really useful thing about forex technical analysis charts is that if you use them well, you can pretty much ignore any hype or panic attacks taking place in the market.
Forex trading charts are based on the idea that certain patterns repeat themselves over and over again. (This can be proven by an analysis of forex prices over the years, but by following charts you don’t need to do this yourself!) So learn how to make use of the trading charts and you’ll know how and when to get into positions for the most profits.
Another good thing about using the charts is that you can avoid trading with your emotions, which is a bad thing. Of course, it’s the sudden and often steep rises and falls in currency prices that make forex trading what it is, but it’s hard to keep fear, greed and other emotions out of it. One of the best pieces of advice in forex trading is not to be constantly trying for home runs, but instead to go for lots of base hits — they add up.
Don’t panic too soon, and don’t celebrate too soon either!You’ll have your share of gains and losses, as everybody does.
In forex trading, the charts are your friend. Learn to use then well and they will help you make money.
The other important tool for forex trading is fundamental analysis. I’ll write about that in another article.
