subject: Forecast The Future Price Movements With Forex Technical Analysis [print this page] One of the basic underlying principles of the forex technical analysis is that one can predict the future price action with the help of historical price action. As the forex market is a 24x7 hour market, there is large amount of data which is applied to gauge the future price action. This helps in augmenting the statistical significance of the predictions. This makes the market an ideal one for the traders to use the tools of technical analysis like the indicators, charts and trends. It should be remembered that the understanding of the technical analysis remains the similar irrespective of the asset which is being monitored. A number of books are dedicated to the study of the technical analysis and related topics and it is important for the traders to understand the significance of tools used in technical analysis.
Assumptions of the forex technical analysis by the technical analyst:
The price data reflects the market fundamentals.
They stress that history can repeat itself, frequently in regular and thereby the patterns of future can be predicted. The technical analysts study the past market indicators and uncover the current market indicators.
The price moves in trends. Technical analysts consider that the price fluctuations are not unpredictable and random.
The technical analyst uses the tools of technical analysis to get the big picture on the price history investment. Every basic trader in the forex market will study and observe the charts and indicators make predictions for the future price action or movement.
Various charts used by the technical analysts to scrutinize the market movements are:
Candle stick charts: Represents high, low opening and closing prices for a particular time period. As they develop, the patterns provide much better visual details.
Bar charts: Common type of chart which shows the price movements and various dissimilar patterns.
Point and figure charts: Similar to the patterns which are represented by the bar charts. The only difference is that these charts use 0s and Xs to highlight the changes in the price movements.
Types of Technical Indicators:
Strength: Describes the intensity of the market opinion on a specific price by scrutinizing the market positions which is taken by various market participants.
Trend: They smooth the price data out so as to demonstrate the trends of up, down and sideways.
Cycle: Represent the recurring market movements from the recurrent events like the elections and the seasons.
Volatility: This represents the magnitude of regular price fluctuations and directional trend.
Resistance and support: Represents the price levels when the market falls and rises.
Momentum: These signals ascertain the weakness and strengths of a trend and how it progress over time.
Presently traders use the tools of forex technical analysis to discover the ideal points for entry and exit of trade in the forex market. Many use them use these to analyze the trend while others use these to determine the strength and sustainability of a particular trend over time.
