Technical Analysis of Forex for Beginners
Technical financial markets. They’re fantastic to use, but can seem a little overwhelming to those who have never really had much to do with them. As with all things in the financial and investment world, it takes some time to really understand everything that is going on.
For any new trader, or for those who are looking to brush up their knowledge, in this article we’re going to break down what technical analysis for Forex is.
Just about all traders these days make use of technical analysis for a variety of different reasons. The ideal place to start your trading journey is by finding out more about the best technical analysis software as using the right tools from the beginning will have you mastering Forex in no time.
What is Technical Analysis?
Before you can jump right on in there and start looking for software, it makes sense that you should have some knowledge about what technical analysis is and how you can use it to your benefit.
In short, technical analysis for forex is the study of price patterns as they relate to an asset. While there are quite a number of ways to identify the patterns, these are some of the most common focuses:
- Chart patterns: these are your classical chart patterns which are created by experienced technicians using their preferred drawing tools which can include trend lines and horizontal lines as well as Fibonacci levels. These patterns are used to provide the reader with clarity regarding the strengths and weaknesses of both buyers and sellers operating in the market.
- Indicators: In the course of this study, the technician looks for the price action indicators to provide them with a deeper understanding of the market conditions they are looking at. Such indicators can indicate the rise and fall of the market prices and even whether or not the market is being overbought or oversold.
- Candle patterns: If you are familiar with Forex charts you are probably already familiar with this term. Technicians use candle charts to gain a better understanding of the behaviours of the buyers and sellers. Charts displaying opening and closing as well as the highs and lows of prices are all greatly beneficial to technicians.
With technical analysis, a technician or trader, can have a look back into the market history and discover which of the trends are often repeating and then determine how often they are repeating, just by having a look at the various patterns.
Once you’ve got the hang of reading a Forex chart and determining the patterns, it is quite simple to start linking the patterns until they are able to give you valuable pointers which can be used in future decision making.
One of the most common and most popular types of software is the MetaTrader. There are currently two types available and each is hosted on an online server allowing millions of traders, both new and experienced, from all over the world to access information.
Technical Analysis Background
The technical analysis of the investment world has been around since the very beginning of the supply and demand industry. Some historical records date back as far as the 17th and 18th centuries. But it was only towards the end of the 19th century that the practice of in depth technical analysis really took off.
Technical analysis became popularised by Charles Dow who is famous for being the editor and founder of the Wall Street Journal.
Does it work?
From the outside, it might appear as though technical analysis is simply speculation for the most part. After all, it is difficult to accurately predict exactly where the market is going to grow or take a dip. But since most traders have already accepted the reality of trade and know that a lot of the time, trading is risky, technical analysis should be a warm welcome.
Financial markets take a knock from numerous sides and it is their very nature to change. Currency in particular can fluctuate for any number of reasons. But if the teachings those who study the charts are anything to go by, the patterns don’t lie.
Those who study the charts are well aware of the fact that there are many things having an impact on the financial world, but they also know how to decipher how each factor and how each factor is going to affect the market. This is quite a difficult thing to do.
When studying the data, technicians tend to focus a lot on the price movement and ways in which the prices have moved in the past. This particular analysis does work because:
- It gives traders what they need in order to determine whether to trade or not.
- It gives the traders a peek at possible trade setups.
- It shows traders where they can find these setups.
- And it tells them how the setups should be managed.
How can you benefit from technical analysis?
The final thing that you need to know about technical analysis is what kind of benefits you can enjoy. It is good to keep in mind that the data you will have access to can be applied to all types of trading including stocks, interest rates and of course Forex.
Here is how you will benefit in terms of Forex trade:
- Easily see the trends
Having a way to quickly find trends and then capitalise on them is a great benefit because it can help you make the most informed decision. Currency in particular is known to move with trends and those who study technical analysis will quickly pick up which way a currency is headed.
- It saves time
As a trader you will enjoy almost instant access to the information that you require. When you have the technical analysis in front of you, you have everything you need without having to have done any complex calculations.
- Free access
Access to technical analysis and thus access to those all-important patterns are free to use, depending on the type of software you will be using. Good examples of this is the various MetaTrader tools.