PRINCIPLES OF FOREX TECHNICAL ANALYSIS
Technical analysis is a method of estimating price movements by comparing data in different time periods and by raising market behavior habits. The application of technical analysis in Forex activities is irreplaceable for most traders.
Technical analysis is based on three general principles:
1. Market movements are considered by everyone
Prices are always influenced by external factors, but technical analysis that shows that the investigation of political, economic and psychological factors influencing price movements is not mandatory, because the main indicator of movement is the price itself. The influence of the slightest factor is considered and indicated by price, therefore it will be the object of learning.
2. Price movements move in a certain direction
To apply technical analysis it is important to understand the meaning of trends. The main objective of the technical approach is the certainty of the tendency of price movements to be able to trade in accordance with this trend.
There are three types of trends:
- Bullish when prices move up
- Bearish when prices move down
- Flat – uncertain direction of price movements
Based on the rules, during price movements you can issue each type of trend, but only one can be the main trend. Remember that trend changes occur only after certain signals appear.
3. History repeats itself
This principle shows that in human history regulations and types of analysis have not changed, which is a precondition for repeating price movements several times in several different time intervals.
Market dynamics in particular are studied using graphs during technical analysis.
The main tools are as follows:
- Japanese candlesticks
- Bar chart (interval)
- Line chart
- Trend indicators
- Wave Analysis
Technical analysis can be a basic forecast instrument in the currency market. This technique is successfully used by professional traders and Forex analysts. Their long experience shows practicality using technical analysis in trading.