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Technical Analysis

Technical Analysis: Fundamentals
The technical analysis of Forex market is the system of methods and tools that allow forecasting the price changes in the future, basing on the analysis of price fluctuations in the previous time period. Forex technical and fundamental analyses are the basis of the trading theory in the Forex market.

Three pillars of technical analysis
Here are three main fundamentals:

  1. All information is discounted in the price. This means that any price changes in the foreign exchange market already include the influence of the economic, political and other factors, so you should abstract away from them. In other words, the price is taken as a given, as a result of the influence of macroeconomical and other factors.
  2. Prices move forms the trends (the long-term trends) and is subjected to them. The analysis over a sufficiently long period of time can identify these trends. The time series analysis of prices gives an idea about the market direction.
  3. Prices move and its character are cyclical, and historic patterns reappear in the market over and over again. The Forex market analysis in the form of diagrams provides a great opportunity to explore this cycle.

Forex technical analysis: Methods
There are several methods of technical analysis.

A graphical method uses charts that have the currency market information on them (prices and/or trading volume). The chart patterns and shapes are interpreted appropriately, and there are identified the key market parameters, such as the trend direction, the turning points, and so on.

The basic graphical methods of analysis contain classical market models:
trend lines, support and resistance lines, channels, candlestick charts, points and figure charts and many others.

The technical analysis of Forex market could also be done by using mathematical and statistical method of analysis.  Using a digital filtering, we can analyze various indicators (trends, volatility, speed, support and resistance lines).

Forex market analysis can use statistical methods and probability theory, which is another analytical method.

The technical analysis of Forex market may be based on the market structure theories as well. The most well-known methods of this group are the Elliott Wave method and fractal method.

Primary information for technical analysis and the parameters:

  • Price
  • Liquidity and trading volume
  • Data on supply and demand.


Forex market analysis and the technical analysis of the stock market: General and special
The technical analysis is applicable to analyze the currency and stock markets. Principles of analysis are mostly the same, however there are some differences. In the currency market, the banks have the right to set only their own quotations, the transaction volumes are not specified, unlike the stock market where that is done by the special commissions.

Trading on the basis of technical analysis
Forex technical analysis is very attractive for the foreign exchange trading on its basis. According to the statistics, more than half traders use the technical analysis in Forex market. It should be noted that when two types of analytics, such as fundamental and technical are used, the results may be different, and only the trader may decide what Forex market analysis should be used, either in combination or separately.

The technical analysis of the currency market, along with the fundamental is the cornerstone of monetary theory, and the trader must carefully study it before doing Forex trading analysis.

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