Technical analysis predicts price movements & future market trends through the study of historical market data: primarily price, volume and open interest. Forex technical analysis is concerned with what has actually happened in the market, rather than what should happen. Technical analysis takes into account the price of instruments and the volume of trading to create charts that will be used as a primary tool. With Technical Analysis experienced analysts can follow many markets and market instruments simultaneously.
Principles for Technical Analysis:
- There are many factors that can affect a price: for example, supply and demand, political factors and market sentiment. However, the technical analyst is only concerned with price movements, not with the reasons for any changes.
- Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. Also, there are recognized patterns that repeat themselves on a consistent basis and these can constitute a key aspect of your trading strategy.
- Forex chart patterns have been recognized and categorized for over 100 years and the manner in which many patterns are repeated leads to a conclusion that the psychology of the market changes little over time.