What is the Technical Analysis


Concisely, foreign exchange trading (otherwise known simply as Forex or FX) is the trading which involves all
investors, traders, banks and other institutions exchanging speculates on transactions (that is, buying and selling) concerning currencies and near-money valuables/assets, in the global (Over-The-Counter; OTC) market. This trading is made possible via an online channel by which currencies are traded daily, every 24 hours – popularly tagged ‘interbank market’. Globally, for the record, there is usually a huge turn-over from forex trading, an estimate of over 4 trillion US dollars.



In finance or business in particular, just like forex trading, technical analysis cannot be overemphasized. Technical analysis is seen as the science and technology of any business; if it cannot be explained, it may not be trade-able, especially in stock and forex market. Technical analysis is the methodology of analysis for predicting or foretelling price directions through studies of preceding market data, particularly the price and volume. Technical Analysts employ many approaches, tools and techniques, to identify price patterns and generally observable market trends in financial markets, and try to maximize the usage of those patterns – charts are popularly employed. In addition, they use market indicators of all kinds available. These indicators are mathematical transformations and analysis of price. The significance of these indicators is to check what assets or currencies are trending, as well as the prediction of the direction of trend, alongside its continuation or trend-span.



Technical analysis for forex trading includes all the aforementioned details about technical analysis being employed in forex trading by analysts, to feed-back investors and traders, regarding matters that concern forex. Since forex market price reflects all relevant information about the market, it is believed that prices can develop trends since the behavior of traders and investors can follow trends too. Forex traders tag this price movement or shift. Interestingly, the more analysts are in search of previous prices and charts, the more the likelihood of the repetition of these patterns. If it is so, then a number of major happenings are predictable in forex trading if the analysis is sound and of great scrutiny. Be rest-assured that the statistical significance of the forecast of a brilliant technical analyst is tangible to rely on. Let’s consider the charts, trends and indicators important to forex trading elementarily.

On a narrowed scope, technical analysis – charts, trends and indicators – for forex trading entail the following:


On Trends

Currency pairs are consider in forex trading – that is a currency as against another in exchange worth – hence, analysts try to determine whether a certain pair will move in a particular direction or go sideways, but still be within range. This is achieved by drawing lines that indicate trends, connecting their historical levels that might have debarred the currencies from heading to previous heights or depths. By doing so, analysts can foretell whether there is a peculiar trend or not; and if yes, where it is possibly heading. For instance, many analysts are well informed that pairs that have US Dollars (USD) such as USD/CHF, GBP/USD, EUR/USD etc., usually show trends in certain directions, while other pairs without USD probably become bound within range only. Currency Pair-trends and pair-ranges are to be well noted by all traders and investors, as these details affect what pairs they can trade, as well as the strategy to employ in trading them.


On Indicators and Chart Patterns

Many indicators are not singly used or employed by analysts, when it comes to forex trading; they are rather
combined, for effective and productive results. Some of these popular indicators include: Fibonacci retracement, Bollinger Bands, Stochastic, Keltner Channels and Moving Average Convergence and Divergence (MACD). These indicators are tools that generate bands and signals, when used with other indicators and chart patterns. Considering Bollinger Bands: it is a tool used to determine overbought and oversold levels, to monitor trend and break-outs. It has a formula. It can be read on a trade chart. It is very useful for traders who have interest in making profits from momentum and exhaustion of trends and those that know how to play their games around a squeeze – this occurs when the price initially moving aggressively begins to move sideways on the chart, indicating a decrease in worth or asset. However, these bands do not give buy or sell signals on themselves; one can only get their tags. On the other hand, comparing Keltner Channels with Bollinger Bands, the earlier gives better signals to buy and sell rather than tags, since the earlier is based on average true range rather than standard deviation. Indicators are best used with chart patterns – that undulate, go sideways, broaden, constrict, trough-like, or crest-like, with fast-moving momentum or otherwise.

In conclusion, traders who want to make more profits, little or less losses in forex trading cannot but, to learn or add significant knowledge to their knowledge-base as regards being technical analysts because every chart, tool, signal, line, object etc., matter in forex trading to the results obtained on a long run.