Technical analysis of the Forex market

Technical analysis of the Forex market, along with fundamental analysis, is one of major methods of price movement analysis and forecasting methods for price behavior in the future.

Analysis is built on the work with price chart as well as with its mathematical interpretation. Main advantage of technical analysis is its universality: with the help of one and the same tools and methods one car research any currency pairs on any historical time-frame.

A founder of modern technical analysis is an analyst named Charles Dow. As early as in the beginning of 20th century he formulated its main principles and propositions that are still relevant. Three main propositions of such are distinguished:

1)     Price accounts for everything. It means that any event (political, economic) which could affect price behavior is already accounted by market and is reflected on the price chart.

2)      Price movement is subject to tendencies. This price proposition underlies technical analysis: price behavior is not spontaneous and casual but represents ascending or descending tendency. Various tools of technical analysis serve to determine direction of this tendency. Charles Dow described ascending tendency as follows: under such price movement, every subsequent maximum or minimum of price will be above the previous one, whereas under descending movement, it will be lower. 

3)    Forex market history tend to repeat.  This proposition is based on traits of human psychology and states: if in the past under certain preset circumstances the history developed in a certain way, in the future, under similar circumstances, it will develop in the same way. 

Modern technical analysis can be divided into two conditional categories: chart analysis and math analysis. Patterns of technical analysis are related to the first group and are able to predict reversal or continuation of the same tendency. Mathematical analysis include various indicators and oscillator, which are so far represented by enormous amount.

Fundamentals of the Forex technical analysis is an indispensable component of educational package of any beginning Forex trader set for a long-term and profitable work regardless of personal preferences of a trader towards various tools.

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