Technical analysis is the study of historical data and chart in order for traders to make better educated trades.

Please note, past performance is not always a reliable guide to future performance.

Forex Market Trends

There are 3 basic types of trends:

1. Short term
2. Intermediate term
3. Long term

First, one must decide the type of trader/investor that they are. You must decide whether or not you hold positions for a long time or buy and sell fast. That decision will determine which charts you should be using. Day traders or those who invest in and out of positions fast will use daily and intraday charts more than investors who buy and hold for long period of times.

Support and Resistance Levels

A support level could be the previous low. The resistance level could be the previous days high point, or better known as a peak. After a resistance level has been broken, it will usually become a support level should the instrument you are trading declines again. When the instrument moves down and breaks he support then this becomes the new low. Looking at it the other way if the instrument moves higher through the resistance level, this becomes the new high.

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retracements

Retracements are percentages. During any given day (open to markets), the instrument you are watching or investing in, will usually retrace previous days trades. No matter if they are up or down. The most common used is fifty percent. We also use the one third, 38% and 2/3 levels.

Trend Lines

The easiest way to begin your analysis is by learning and applying trend lines. First thing you must do is to draw a straight line that joins two points on your chart. To show a trend line that is increasing, connect two lows in a row and for a trend line that is decreasing, connect two straight peaks. You will note that usually, the market (price) will pull back towards a trend line before resuming a trend. When the price breaks a trend line, this is the end of a trend. The longer a trend line the more it has been tested and the more important it is. Note that a trend line becomes valid when the market touches it 3 times.

Moving Averages

When you are looking for buy and sell signals, one looks at moving averages. These averages will tell you if an existing trend is still in play. Beware: these do not predict trend changes. Traders usually use two moving averages. Movements above and below the 20 and 40 day averages are very popular. 5 and 20 day averages are very popular for those who trade quickly.