Technical Analysis and Forex Market Trading

Technical Analysis and Forex Market Trading

Technical analysis can be applied in its full potential to the forex market. Technical analysis is based on the different cycles the economy goes through. Since currency movements over the long-term are directly related to the different cycles the market goes through, combined with the fact that economic cycles are repetitive in their nature, technical analysis is perfect for the foreign exchange market.

Technical analysis bases its conclusions on historical data about past price movements. Such past trends are used in order to make predictions regarding the future trends of prices. On the other hand, technical analysis is a less preferred tool when dealing with stock markets.

This is caused by the fact that the business fundamentals of a company are not very stable and can be influenced over the short-term. As a result future predictions based on past performances may become irrelevant.

Since the FX market is characterized by normalized conditions, technical analysis can benefit from the detailed statistics that are provided regarding the assessment of the prevailing market conditions.

In contrast, equities and futures markets are more dynamic and unstable, which results in less reliability of the statistical data on which conclusions and predictions can be done.

This means that even though a particular investment has acted in a certain way in the past, the possibility that it will repeat its behavior in the future is greatly reduced.

On the other hand, currencies are characterized by their ability to build up consistent trends over the time. Since a big percentage of the market includes investments of a speculative nature, often times the market explodes and then rebalances itself.

If you manage to technically educate yourself, the possibility of noticing new trends is highly increased. As a result you will be more adept at entering and exiting different positions when the conditions call for this.

In order to become a successful trader at the forex market you will have to deal with different charts and indicators that are part of the provided charting packages.

The success of your trades may depend on the understanding of such concepts as Fibonacci Retracements, Stochastics, MACD, Moving Averages, RSI and many others.

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