EURO.uz -The Forex quick guide for beginners and private traders

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The Forex quick guide for beginners and private traders


Technical Analysis:


Patterns and forecast methods used today


Basic Forex forecast methods:
Technical analysis and fundamental analysis
This chapter and the next one provide insight into the two major methods of
analysis used to forecast the behavior of the Forex market. Technical analysis
and fundamental analysis differ greatly, but both can be useful forecasting
tools for the Forex trader. They have the same goal - to predict a price or
movement. The technician studies the effects, while the fundamentalist
studies the causes of market movements. Many successful traders combine a
mixture of both approaches for superior results.

If both Fundamental analysis and Technical analysis point to the same
direction, your chances for profitable trading are better.

In this chapter:
The categories and approaches in Forex Technical Analysis all aim to support
the investor in determining his/her views and forecasts regarding the
exchange rates of currency pairs. This chapter describes the approaches,
methods and tools used to this end. However, this chapter does not intend to
provide a comprehensive and/or professional level of knowledge and skill, but
rather let the reader become familiar with the terms and tools used by
technical analysts.

As there are many ways to categorize the tools available, the description of
tools in this chapter may sometimes seem repetitive. The sections in this
chapter are:

  1. Technical Analysis: background, advantages, disadvantages;
  2. Various techniques and terms;
  3. Charts and diagrams;
  4. Technical Analysis categories / approaches:
    a. Price indicators;
    b. Number theory;
    c. Waves;
    d. Gaps;
    e. Trends;
  5. Some other popular tools.
  6. Another way to categorize Technical Indicators.

Technical analysis

Technical analysis is a method of predicting price movements and future
market trends by studying what has occurred in the past using charts.

Technical analysis is concerned with what has actually happened in the
market, rather than what should happen, and takes into account the price of
instruments and the volume of trading, and creates charts from that data as a
primary tool. One major advantage of technical analysis is that experienced
analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles:

  1. Market action discounts everything! This means that the actual price is a
    reflection of everything that is known to the market that could affect it.

    Some of these factors are: fundamentals (inflation, interest rates, etc.),
    supply and demand, political factors and market sentiment. However, the
    pure technical analyst is only concerned with price movements, not with the
    reasons for any changes.
  2. Prices move in trends. 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. There are also recognized patterns that repeat themselves on a
    consistent basis.
  3. History repeats itself. Forex chart patterns have been recognized and
    categorized for over 100 years, and the manner in which many patterns are
    repeated leads to the conclusion that human psychology changes little over
    time. Since patterns have worked well in the past, it is assumed that they will
    continue to work well into the future.

 

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