Understanding the Basics of Technical Analysis

Whether you are trading stocks or currency, technical analysis is an advanced tool used to try and predict changes in your market and trade accordingly.

At the base of technical analysis is price history. You are studying the price of a currency, it’s up and downs, and looking for an obvious indicator that will tell you when another up or down is coming up. Think of it like trying to learn to read tea leaves to see the future – except there is real science behind it.

Using Charts For Technical Analysis

The most basic tool for technical analysis is your chart or graph. Whether you are looking at a line graph or candlesticks, the Forex trading chart is giving you a wealth of information. First, you can check the support and resistance. These are the points where it seems that the currency pair won’t cross. Is there a certain range in which the currency is moving? When you see a price making sudden movements in that range you can use the support and resistance to predict when it is going to change its direction again.

Trend lines can be used when there is a definitive pattern that you can follow. You can chart the trend line if it is moving in one direction to predict where the price is going to go using indicators.

For example, let’s say you are studying a candlestick chart -which you should as they give you more indicators in one convenient place. This type of chart can help you to find trends that indicate a major reversal is about to take place. One indicator you can look for is what traders refer to as “three white soldiers” which indicate a bullish reversal is pending. Continue reading "Understanding the Basics of Technical Analysis"