Successful forex trading is impossible without profound analysis. A trader is to estimate the current market situation, forecast its future movement direction, and use this information to choose the best time for trade.

Traders rely on technical and fundamental analyses to assess the situation on the financial markets. Although technical analysis dates back to over a century, its spread was limited to just a handful of market professionals before internettrading emerged. Nowadays technical market analysis is the key and most widely applied method for predicting price movements.

The concept of technical analysis

Technical analysis is a method of forecasting price movements on the basis of historical data. That is to say, the information on the changes of price for an asset or a currency in the past can help traders to forecast its behavior in the future. Forex technical analysis is based on the three key principles.

The principles of technical analysis:

• Any information affects the movements of financial markets
• Price movements conform to trends
• Market history repeats itself

In summary, all the information affecting currency prices is presumably inherent in the price itself, and therefore there is no need to further analyze economic and political events. Moreover, it is believed that prices changes follow some specific patterns with certain market situations repeating themselves from time to time. It is these typical repetitions that forecasts of future price movements on forex or stock exchange markets are based on.

There are two types of technical analysis

• Forex graphical analysis
• Forex mathematical (computer) analysis

Graphical analysis is based on reading typical patterns and formations of price charts. Double top, head and shoulders, and flag are among the most frequently seen patterns. Computer analysis makes forecasts based on mathematical calculations of past price behavior such as values of technical indicators and oscillators.

Technical analysis tools allow traders to quickly find their bearings and make a trading decision. This is why, as opposed to fundamental analysis, technical analysis of forex market can be effectively applied for both long-term investment and short-term speculative trading.

Any kind of forecast obviously indicates just the most probable, however not the only possible, scenario. But technical analysis can simply and clearly indicate the current market trends give information about the development of similar situations in the past.

Learning technical analysis

Beginners often tend to neglect technical analysis because of its apparent difficulty for comprehension, relying instead upon their own expertise, luck and widely-available information. This is, of course, an utterly erroneous belief. With all its complex terminology technical analysis of forex market does not require profound knowledge in maths or economics.

Computer makes things easier for a trader it is easy to draw patterns on the charts in the terminal and all the calculations are done automatically after just pressing a few buttons. However, all the methods of technical analysis wont bring you any profit on forex unless you understand how one or another tool works. or how to interpret the obtained data best.

Video: example of technical analysis

Trend lines Tides in the Market: correction and consolidation Charts by type: lines, bars, Japanese candlesticks

It should be kept in mind that only theory is not enough for successful trading. We strongly recommend you to reinforce your lessons on technical analysis by practice.