WHAT IS TECHNICAL ANALYSIS?

Technical analysis is the methodology for forecasting the direction of prices through the study of past market data.

Technical analysis is used to predict market direction based on the analysis of the graphs of recent price changes. Forecasting of the future market direction through technical analysis plays an important role in the development of trading strategies among traders at the FOREX market.

One of the key features of technical analysis is to predict price tendencies and determine the direction of market trends.

1) Market price movements occur resulted from the impact of many factors.

Economical, political, and psychological factors affecting price movements are determined in advance and reflected in the price graphs. In other words, a price is an indicator that reflects each factor affecting the market.

2) Price changes may have a specific direction.

The use of technical analysis methods has great importance. The main purpose of the technical analysis is to provide a clear and accurate market trend forecast aimed at getting positive trading results. Technical analysis is based on the Dow theory. By the theory price tendencies are identified as follows:

In an upward trend each next peak or bottom of a price change is placed above its previous level and vice versa, in a downtrend each next peak or bottom of a price is placed below its previous level.

3) The history repeats itself

There is a close link between the movements at the FOREX market, technical analysis, and human psychology. Price graphs that were reviewed almost a century ago show a certain state and nature of price changes. Here come such concepts as the “bull” and the “bear” in the FOREX market. These formations are considered to give positive results in the future once those achieved in the past. The bull and bear stem from unchangeable human psychology. Thus, in technical analysis studying the past is the way to predict the future.