Fundamentals of Technical Analysis of the Forex Market

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Основы-технического-анализа-на-рынке-FOREX How does one start a career in Forex trading? First, you explore the Forex market’s structure and trading rules, try yourself out in a demo account and then, finally, open a real-world account Some people are guided in their work by fundamental analysis, while some are guided by the data derived from technical analysis, yet some prefer intuitive analysis of the market’s dynamics.

On Forex, things are simple: if you make a correct prediction of which direction the price will take – you earn; if you don’t make a correct prediction, you lose at StopLoss. But in order to understand that the most important thing on Forex is simplicity, you have to learn not to complicate your work and to focus on the most important thing – being able to successfully predict the direction of price. Remember: there are only ten books in a person’s life that he/she needs to read to understand the world, but before finding these ten books, you need to read thousands. The same is true about Forex.

What is technical analysis? Technical analysis is the analytical study of market price dynamics through the use of graphs and bar charts in order to predict the future direction of price movement. Technical analysis of the foreign exchange market is based on data from past behavior of the currency pair and represents a set of methods the use of which allows the trader to make predictions about the subsequent direction of price movement.
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Let me rush to provide a warning here: technical analysis cannot be called a perfect prediction tool, the only simple reason being that the foreign exchange market cannot provide one hundred percent certainty about any trade, as it is by nature out of anyone’s control and can turn at any time. How accurate your prediction will turn out to be and, more importantly, for what time horizon you will be able to make it will only be demonstrated by your trade, even though technical analysis methods and timeframes in which you apply them are what have the greatest impact on the results of your trades. The good news is that, to carry out technical analysis, you need not be a financial genius. The only thing you have to do is learn to understand the intricacies of its methods, which are much easier than those of fundamental analysis, one of the reasons being that, in technical analysis, you need not constantly monitor the news stream. The confidence of such statements is based on the fact that many of the patterns emerging on Forex have a proven tendency toward repeating themselves, making it easier to forecast future movement in prices. The basis of technical analysis can be considered to be price charts, which are designed to help market participants find patterns in the movement of currency pairs. Price charts are what reflect the activity of a trading instrument in the market and the trends (tendencies) and various figures and patterns that traders will subsequently use in their trading. Said price charts may contain various histograms, Fibonacci levels, Japanese candlesticks combinations, Bollinger bands, support and resistance levels and others. Technical analysis also helps the trader determine the right times to enter and exit positions using trend detection and confirmation techniques and later on identify the moment the trend ceases to exist. In addition, price charts will often enable you to detect the emergence of similar-looking shapes and formations. The ability to detect patterns as early as at the time of their formation can help predict the movement of the currency pair. The figure-based trading method is rather complicated, but if you can master it, you will be able to more accurately predict market trends. Technical analysis is based on a few statements that have on more than one occasion affirmed their relevance: One of them says that the price always takes everything into account. Fluctuations and changes in the movement of a currency pair may be affected by any macroeconomic indicators, whether it is news about the oil price crash or about a change in the leadership of a single country or another release of GDP numbers. The next question then is why we need to know the exact reasons behind price changes. If there is a price change, apparently the price has already responded to whatever reasons are behind the change. That is why, in the technical analysis of the market, it is less important to puzzle over why the trend has been formed than to just follow it. The direction of movement of a currency pair, one way or another, follows a trend, as there is such a thing as market psychology. When market participants are afraid of incurring losses, they begin to sell (at a time when the market falls); when they desire to make money (driven by greed), they begin to buy (at a time when the market is growing). We can say with certainty that the majority of these actions are not fully conscious, and that thereby they support the current tendency and the current direction of the trend (tendency).
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And the most important thing to consider when doing technical analysis is that history repeats itself. The reason is quite simple: most of our actions are based on experience acquired either by ourselves or from those people whom we consider an authority. We can say that the future results of a given action will be similar to or same as the past results of that action. To top it off, I would like to say that technical analysis offers an incredible array of tools, which is why this article only touches on them. The first extensive classification of technical analysis tools is their division into image-based (construction, location and subsequent analysis of models) tools, filters and loops. Also used in the analysis are linear instruments, which are sets of different lines such as a trend line, which can be horizontal and vertical. In addition, fairly common technical analysis tools are arches, the grid, the channel and the Fibonacci fan, as well as a variety of geometric shapes and Elliot waves. And, of course, technical indicators, whose importance in analysis can hardly be overestimated. Therefore, go ahead and open a real-world account and dive into the abyss of technical analysis using analyses from Alexander Gerchik. Find your own unique ways to apply technical analysis tools, and, before you know it, you will start earning from trades you can forecast thanks to your newly acquired knowledge!

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