Technical analysis is often linked to fundamental analysis. Technical analysis, however, places more of a focus of the effects of market movements rather than the causes. For traders who prefer to trade on intuition, the use of a technical analysis is often overlooked. But to the more informed trader, this method can be indispensable.
Technical indicators are used to collect and interpret past information to make predictions of future movements. Charts, trends and mathematical techniques are used to examine aspects of a currency pair's price movement.
Charts can tell the story of a currency pair. The charted movement of a currency pair can provide a wealth of information, the historical movements and indicate likely future movements.
Trends can be derived from these charts, although there can be a different number of trend lines read. A basic trend line will show a currency pair is moving (or trending) whether it be upwards, downwards or sideways. Finding a trend line is often the most useful reading in predicting future movements of a currency pair.
Traders also often use resistance and support trend lines. A resistance trend line is indicated above the currency pair price. While a support trend line is indicated above the price. These trends lines are determined using the moving average lines, or more complex technical methods. Used in consideration of the projected trending of a currency pair, the support and resistance trend lines assist in predicting how the currency pair will move.
So why do traders use technical analysis? An accurate analysis is useful in finding the best entry and exit points for a profitable trade. The nature of the Forex market is face paced and highly volatile, so for many traders the technical analysis is a way of maintaining control over their trades and profitability.
The use of charts in this analysis clearly depicts for traders where momentum is rising, where a trend is forming, when a price is dropping and other useful events that may be developing. Technical indicators enable traders to accurately identify and exploit opportunities as they arise in the Forex market.
