Technical Analysis

Technical Analysis

In a technical analysis you look at the price and volume data to be able to predict wich movements may have in the future. The basis for a technical analysis gave the Charles H. Dow, whose methods were based on the behavior of investors, in psychology and in the movements of prices. When an analysis is made based on the movement of prices will be doing a technical analysis.

As you can see in the charts that are not more than a compilation of the movements in the market price of a particular currency, the beginning of a technical analysis is that any market moves in trends and in the statements of encouragement of traders.

Therefore all the information necessary to conduct a technical analysis is in the chart of a particular currency.

The analysis of the trend is necessary for trading in Forex, since in Forex you can gain in a bull market and a bear market, as we buy currency to buy and sell the other. The trend lines are simple reference that will be useful to confirm the direction of the trend of a currency.

The advantage of technical analysis is that all the factors that affects the prices of currency, such as rational or irrational (economic data, hopes, feelings are expressed in a single element that represents the agreement between buyers and sellers in a given time. This element is the quotation, which synthesizes the future expectations and estimates that investors may receive for each currency, and that determines the price.

With a technical analysis we can detect when a trend is about to change, or can continue, as well as we can have the areas that can serve to us like reference for an operation.

But as we said it is necessary to operate with coldness and discipline not being left itself to take by possible prefeelings, euphoria, or discouragement and should not be carried away by the atmosphere.

n order to make an analysis technical we will be based first on the tendency, that can be primary, secondary or tertiary. So that the primary tendency can last years, secondary the months and the tertiary are variations within the secondary tendency.

It will use indicators and patterns, where indicators are mathematical operations on the range of prices that exist in the chart, while the patterns are forms that are often repeated over time.

The second important point is a technical analysis is the resistance and support, since there are levels that remain constant over time and that are difficult to break upwards (resistance) or can to break down (support).

There are resistance or supports difficult to break since the own traders determine if it is good for breaking them or no. But when a rupture of a support or a resistance takes place the prices tend to go towards the following level of support or resistance.

But there can be false breaks in a given level and this is because the traders are not attracted to break this level.

All that what we find in the charts that the broker gives us, such graphics like we will explain in the next section can be displayed in different ways.