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What is Technical Analysis in Forex?

Technical analysis is a type of analysis that uses mathematical formulas to analyze the financial market.  The primary reason for using technical analysis is to predict the price movement of a particular financial instrument. There are several technical tools and indicators out there. However, there is one thing common between these technical indicators and that is! They all use historical data and mathematical formulas to analyze the market.

Analyzing the Price Patterns

The price patterns are another form of technical analysis.  But it’s more like visual analysis of the market and does not involve mathematical formulas. The price patterns are usually analyzed using the candlesticks charts and the drawing tools to draw different patterns like the triangle price channels flags and so forth.

Technical Indicators

There is an overwhelming consensus in the market that all the market variables are reflected in the price movement on a chart. So if all the market variables are available on the charts it’s a just matter of analyzing the price movement and predicting the future price movements. However it’s easier said than done and you would need to learn a lot about various technical tools and indicators. For example if you want to analyze the market volatility the bollinger band’s is perhaps an ideal tool. It uses a 20-period moving average in the middle which is wrapped in between the upper and lower bands. The bands then indicate the market volatility using a standard deviation.

Similarly if you want to analyze the overbought and oversold levels of a particular instrument you will need to use an oscillator like the rsi and stochastic. The rsi for example oscillates a line between 30 and 70. Price action at or below 30 indicates that the market is oversold while if it’s above 70 the market is considered overbought.

Techncial analysis

Technical analysis is a vast field and it requires time and experience to master it. By learning to analyze the market properly you will be able to predict the price movement and see your portfolio grow.

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