Technical Analysis is used by forex traders to identify the market’s trends as well as price levels that have a high probability of rebounds such as support and resistance levels. It assists traders in the Foreign Exchange Market in identifying trading signals (in terms of entry and exit locations). A graph is used by a technical analyst to examine the history of an asset’s evolution. He pinpoints the crucial areas of the financial markets where buyers and sellers collide.
To proceed with proper chart analysis, a forex trader looks for confluence between several indicators. To do this, traders have various tools at their disposal: technical indicators, trend lines, support/resistance levels, chart patterns, and, of course, the most important tool of all, a graphical history of forex prices.
Technical Analysis is based on the fact that certain market configurations are cyclical and that price movement repeats over time. Technical analysis, as opposed to fundamental analysis, which investigates economic causes and long-term patterns, is the strategy most commonly employed by forex traders to forecast short-term currency price changes. As a result, traders should employ technical analysis to trade spot forex and CFDs. Traders might use multiple time frames to evaluate charts depending on their investment horizons. Analysts prefer Japanese candlestick charts.
Types of charts
Trading naked or with technical indicators?
Only about 25% to 30% of forex traders rely on technical analysis to determine their trading signals. Most traders, on the other hand, see fundamental and technical analysis as complementary.
The forex market is a highly trend-driven market, concepts such as trends and support/resistance levels are therefore particularly important.