Basis of technical analysis

Basis of technical analysis

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Trading in the Forex market involves the use of certain analytical techniques that will help to make a profit and become successful.

Technical analysis is the most well-known method for forecasting prices on the securities market. It is based on the analysis of two components – price movements and movements in the volume of trade in a certain time interval. In fact, the method has data from the previous history of the market. This includes the price, sales volumes and level of open interest.

Basic principles

As for the Forex market, forecasting uses the price history. The concept in this market applies only to teak volume, that is, the number of changes in the evaluation of bids for the purchase and sale of currency in the system. Teak volumes are a rather conditional criterion and only indirectly demonstrates the general activity of the market. Open demand on the Forex market is not calculated at all.

The technical approach itself is based on three “whales”, which are its principles. The first is that any movement in the market is dependent on political, economic and social factors. The second is based on key market trends, which are the conditions for price fluctuations. And the third principle is based on cyclicity.

The initial data on prices and their dynamics are available to any bidder and arrive stably in real-time conditions. This is most convenient way for forecasting by methods of technical analysis, which relies on price.

In technical analysis the key concept is the trend. The work of technical analysts is to recognize current and new trends on the price chart in different periods. This knowledge is needed in order to use them in the trading process and to mark the end of certain trends in order to leave the market in time. The study of trends is based on the cyclical nature of a phenomenon and requires a careful approach.

There are three types of trends in price dynamics in the Forex market:

  • Bullish – up.
  • Bearish – down.
  • Lateral – when the price practically does not move in any direction.

But all these trends are not observed in pure form. They can’t be graphically represented as straight lines. The price index is dynamic and constantly changing the trend. Therefore, the bullish tendency is determined in the case that the price movement upwards prevails over the fall. The bearish trend is when the price fall exceeds the rise.

The Forex market considers the methods of technical analysis through the prism of human psychology as a similar behavior in similar cases, therefore the behavior patterns of people in different situations remain unchanged for a long period. And if some tendency brought profit earlier, it will also work in the subsequent time.

Technical analysis is based on the statistical data of human psychology, which has developed historically. Experts believe that the methods of technical analysis are universal and are able to work in any kinds of markets. This opinion is fully justified, because the laws of the market and prices together with key trends remain practically unchanged for several decades.

The Trading Group company will teach all of newcomers the basic principles of technical analysis. Training courses, that are conducted by experienced traders, allow you to achieve maximum success in promoting the Forex market.