Technical analysis in Forex market: Basic guideline

Historically, the technical analysis in the open markets used six variables on certain timeframes of exchange rate data: opening price, peak, trough, closing, volume and general interest.

Technical analysis consists firstly, in a variety of technical studies that can be interpreted into determining where the market is headed or into forecasting the sell or buy signals. The common element of the technical studies is price/time chart that identifies the trends of currency prices.

The difference between technical analysis and fundamental analysis is that technical analysis ignores the fundamental factors and applies only to the action of the price in a market.

Technical analysis is based on the evaluation and instinctive feel in predicting the future trends as to inferring the future price changes from those of the recent past. As technical analysts say, these trends repeat themselves regularly and lead to similar behavior. Some of them predict price decline, while other signal it’s time to buy.

Some charting methods can predict the size of possible gains or decreases. Unlike the fundamental analysis that evaluates the general market condition, the technical analysis is used to guide trading decisions and to predict the best time to buy, according to X-Trade Brokers Romania.

Thus, there are three principles that vector the technical analysis
- The market absorbs all factors that influence the prices
- Prices depend on trends
- history repeats itself: the charts reveals price patterns in the data