An Introduction to Forex Technical Analysis
For new traders, the vast range of methods used to trade the financial markets may appear quite daunting. However, the reality is that the majority of these methods can be categorised as either fundamental analysis or technical analysis. While some traders use both, most traders these days focus mainly on technical analysis for some very important reasons.
How to perform technical analysis?
There are indeed many ways to perform technical analysis of a security. In all cases, the technical analyst draws upon historical price data to identify recognisable and repeatable patterns. These patterns are then analysed to help traders identify the correct condition of the market, as well as possible points to enter and exit the market.
For most of the 20th century, and throughout history, technical analysis was limited to charting, as statistical computation of vast amounts of historic data was not possible. That meant that no technical analysis indicators were available. It also means that now, the digital era, can possibly be considered as the golden age of technical analysis and the right time to learn more about it.
Advantages of Technical Analysis:
Forex technical analysis only requires a few basic tools which are free with the Admiral Markets MetaTrader platform.
Forex technical analysis can sometimes give high probability directional views and points of entry and exit from the market.
There are a wide variety of technical analysis tools and indicators that can help with identifying possible trading setups.
Disadvantages of Technical Analysis:
Because of its widespread use, Forex technical analysis can trigger very abrupt market movements in the event that many traders come to the same conclusions.
In some markets, technical analysis should always be combined with fundamental analysis.