Technical analysisis based on the study of historical price action in order to identify price patterns and predict the future movements in the forex market through the use of technical indicators and historic price patterns.
Although forex technical analysis depends mainly on charts and patterns, it also includes aspects of behavioral economics and risk management. The main goal behind technical analysis is identifying trading opportunities and predicting price direction.
Core Concepts of Technical Analysis
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History repeats itself:
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Prices move in trends:
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Price action is everything:
It is basically believed that human emotions are the main driver of prices in the financial markets. Therefore, historic price action is likely to be repeated once traders experience the same emotions.
This concept reflects the fact that prices do not move randomly, as they follow specific trends. The objective of technical analysis is to identify these trends and predict future trends.
This is based on the assumption that price charts reflect what you need to know about prices. To analyze the market, all you have to do is analyze the price movement.
Why Do Traders Use Technical Analysis？
Technical price analysis is essential for identifying the overall price trend, entry and exit points for every trade, and support and resistance levels. Technical analysis helps you to determine not only when to enter a market, but more importantly when to get out.
Technical Tools
When it comes to technical tools and indicators, there are a wide variety of technical analysis tools and indicators that can help you identify good trading opportunities. They vary from simplicity as in trendlines to complicated mathematical calculations. However, advanced trading platforms do all the calculating work for you. The most popular technical tools are:
Trendlines and Price Channels:
The Trend lineis a charting technique that uses lines to simplify the direction of a currency. While a channel consists of two trend lines parallel to each other. The channel can be used to interpret the levels ofsupport and resistance. Trend lines help to identifyentry and exitpoints through support and resistance levels. Read more onTrend Analysisin Forex Trading.
Read more about Technical Analysis on Aximdailyto learn about other technical analysis tools and how to learn and use it in your everyday trading.
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