FOREX analysis is divided into two types: Fundamental and Technical. Fundamental
analysis attempts to predict movements in currencies by examining current political and
economic events. Technical analysis uses historical economic data to predict movements
in the FOREX. These two articles will examine the principles of technical analysis and
the tools involved.
Basic Principles
Technical analysis is based on three assumptions:
1 – Price movements are a result of all market forces combined. Things that can affect
currency prices include political events, economic conditions, supply and demand,
seasonal variations and weather conditions. The technical analyst, however, is not
concerned with the reasons for market movement, but rather, the movements
themselves.
2 – Currency prices follow trends. Many market patterns have been recognized as having
predictable consequences.
3 – Price movements follow historical trends. FOREX data has been collected for over
100 years and patterns have emerged over time. These patterns are based on human
psychology and the way people react to certain sets of circumstances.
Is Technical Analysis Necessary?
Most FOREX day traders rely heavily on technical analysis and may use fundamental
analysis to support their trading strategy. A major advantage of technical over
fundamental analysis is that it can be applied to many different markets and currencies at
the same time. Fundamental analysis requires in-depth knowledge of the political and
economic conditions of a certain country; therefore it is less likely that any one trader can
do proper fundamental analyses on more than a few countries.
The beginner trader may be put off by the seeming complexity of technical analysis and
wonder if it is necessary for FOREX trading. As with any investment, FOREX trading
requires a strategy. Although any strategy is possible, technical analysis is a proven
method for predicting movements in the FOREX. Does that mean it's a sure thing?
Nothing is 100% certain, and currency prices are affected by a variety of forces. This is
why many traders use a combination of technical and fundamental analysis to plot their
trading strategies.
Availability
Every FOREX online broker should provide access to a wide variety of charts for
technical analysis. Some charting software is available free of charge while in-depth
professional charts may carry a monthly fee. Charts can be viewed by various time
scales and provide detailed information about price movements as well analytical
overlays. Charts can be zoomed in to the tick level or zoomed out to see the broad
picture over a period of months or years. Charts are updated in real time.
FOREX charts may be available on your broker's web site or may be included as part of
their trading software.
Before beginning in FOREX trading it is a good idea to become accustomed to market
behaviour by following charts for a period of time and studying their movements and
learning about trends. Many brokers provide practice accounts that can be used by
beginners to place 'paper' bids – no real money is exchanged. These practice accounts
familiarize the beginning trader with FOREX charts and market movement while at the
same time allowing him to become acquainted with the trading software a particular
broker uses.
analysis attempts to predict movements in currencies by examining current political and
economic events. Technical analysis uses historical economic data to predict movements
in the FOREX. These two articles will examine the principles of technical analysis and
the tools involved.
Basic Principles
Technical analysis is based on three assumptions:
1 – Price movements are a result of all market forces combined. Things that can affect
currency prices include political events, economic conditions, supply and demand,
seasonal variations and weather conditions. The technical analyst, however, is not
concerned with the reasons for market movement, but rather, the movements
themselves.
2 – Currency prices follow trends. Many market patterns have been recognized as having
predictable consequences.
3 – Price movements follow historical trends. FOREX data has been collected for over
100 years and patterns have emerged over time. These patterns are based on human
psychology and the way people react to certain sets of circumstances.
Is Technical Analysis Necessary?
Most FOREX day traders rely heavily on technical analysis and may use fundamental
analysis to support their trading strategy. A major advantage of technical over
fundamental analysis is that it can be applied to many different markets and currencies at
the same time. Fundamental analysis requires in-depth knowledge of the political and
economic conditions of a certain country; therefore it is less likely that any one trader can
do proper fundamental analyses on more than a few countries.
The beginner trader may be put off by the seeming complexity of technical analysis and
wonder if it is necessary for FOREX trading. As with any investment, FOREX trading
requires a strategy. Although any strategy is possible, technical analysis is a proven
method for predicting movements in the FOREX. Does that mean it's a sure thing?
Nothing is 100% certain, and currency prices are affected by a variety of forces. This is
why many traders use a combination of technical and fundamental analysis to plot their
trading strategies.
Availability
Every FOREX online broker should provide access to a wide variety of charts for
technical analysis. Some charting software is available free of charge while in-depth
professional charts may carry a monthly fee. Charts can be viewed by various time
scales and provide detailed information about price movements as well analytical
overlays. Charts can be zoomed in to the tick level or zoomed out to see the broad
picture over a period of months or years. Charts are updated in real time.
FOREX charts may be available on your broker's web site or may be included as part of
their trading software.
Before beginning in FOREX trading it is a good idea to become accustomed to market
behaviour by following charts for a period of time and studying their movements and
learning about trends. Many brokers provide practice accounts that can be used by
beginners to place 'paper' bids – no real money is exchanged. These practice accounts
familiarize the beginning trader with FOREX charts and market movement while at the
same time allowing him to become acquainted with the trading software a particular
broker uses.
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