How to technical analysis forex

The Japanese approach, most of it deals with interpreting candlestick charts.

For example look at this one, and zoom in, we see that these are candles. The power of the Japanese Candlestick technique was so great, and the westerners were so impressed, that they went on to adopt the candlestick chart. Over this course, we will examine many of these technical concepts. Therefore charts were very different a decade ago. Therefore candles do not have that kind of slippage. So the way that the market is presented to us changed, and technical analysis had to change, and it will change in the future. There is not only trend lines and trading theories, but also plenty of indicators.

Let me show them here to you; there are Bill Williams indicators, Cycle indicators, math operators, momentum indicators. These are basically the oscillators. We will treat most of the oscillators. The idea of an oscillator is to compare the move the oscillator makes, with the move the actual price makes.

Characteristics

The purpose is to find out which one of the two lies. But how do you know when that is the case? That is why oscillators are here to do that job. We also have in part of technical analysis, overlap studies or trend indicators. But if you use the Metatrader, changes screen to show the Metatrader it is exactly the same. You go on the insert indicators, and you have trend indicators, and oscillators, some of them and you can import others as well. I think you have got the picture now as to what technical analysis is and we will move on to the next part of our trading academy showing you how to apply various indicators in a chart.

Both on the J Forex and the Metatrader, as two of the most popular platforms for retail traders. In plain English, technical analysis represents the ability to chart a currency pair using different technical tools in order to have an idea about future market direction.

The beauty of doing this is that the outcome should have a direction, a take profit, and a stop loss, as this makes trading well-anchored in money management rules, making it very difficult for a trading account to be wiped out. There are many things to consider when looking at the overall technical analysis, and they are classified based on the inputs traders use for charting a currency pair.

Technical analysis has its roots in the Western hemisphere, as the United States of America was the first part of the world to use charting techniques in order to forecast future prices a financial product may make. For that purpose, various concepts such as reversal and continuation patterns have been introduced, with them representing the very basic of technical analysis these days.

In this category are rising or falling wedges, head and shoulders patterns , and double and triple tops, all of which represent reversal patterns. Channelling techniques and continuation patterns such as pennants and bullish or bearish flags are also part of the same basic technical analysis concepts. The only thing that is different is that some traders mistake a bullish flag for a pennant, but in the end, the price should break in the same direction so that the actual technical analysis has the same outcome.

Recently in the last couple of decades , the whole technical analysis concept as it was known so far was influenced by the Japanese approach to this subject. The Japanese were using different charting tools to anticipate price reversals or continuations, and these tools were based on a new type of chart: the candlesticks chart.

The price of a financial product is divided into different timeframes such as the monthly, weekly, daily, 4-hour, hourly, and even shorter, and a candle represents the time unit that corresponds to that chart.

For example, a candle on the monthly chart represents 1 month, while a candle on the hourly chart represents 1 hour. Moving forward, the Japanese applied so-called Japanese Candlestick Techniques mostly to identify reversal patterns based on these candles, and to spot tops or bottoms. In a way, it is the same thing the Western approach tried to do: to use patterns to identify reversal or continuation patterns, only that for the Japanese these patterns were actually candles, or group of candles.

These techniques were so effective that they were embraced with much enthusiasm by the Western world, and to this day they are widely used. One can talk about reversal patterns such as bullish or bearish engulfing, dark-cloud cover or piercing, morning and evening stars, hammer or hanging man, or about continuation patterns such as a simple Doji candle. In addition to the types of technical analysis mentioned above, there are a lot of trading indicators that can be used in order to forecast future prices a currency pair is about to make.

These indicators are either trend indicators or oscillators. Trend indicators are applied on the actual chart, and they represent exactly what the name suggests: indicators that are used for the purpose of riding a trend until its exhaustion.

There are so many trend indicators that it makes no sense to mention them all here. Just keep in mind that the most popular ones are moving averages simple and exponential ones , Bollinger Bands, or the SAR Parabolic indicator. All of them show basically the same thing: how to ride a trend.

When using them, traders are looking to buy dips in a bullish trend or to sell spikes in a bearish one. The other category of trading indicators is oscillators. These indicators are applied on the lower side of the screen, below the actual chart, and represent a value plotted based on different inputs the oscillator takes into account number of candles considered, averages, etc. Successful approaches when trading with oscillators are based on traders looking for divergences between the moves that the price and the oscillator make.

There are bullish and bearish divergences, so long or short trades can be taken. Last but not least, the technical analysis comprises many trading theories one can use in order to forecast future prices. All in all, technical analysis is a must for any trader involved in the Forex market. Regardless of the tool used indicator, pattern, or trading theory , technical analysis, if used correctly, gives the direction in which the market is supposed to move.

We at Topratedforexbrokers. We will only process your personal data in accordance with applicable data protection legislation. For more information on how we treat your personal data, please review our Privacy Policy. How does one do that? The words forex technical analysis may seem incredibly specific to the field of currency trading. By reading, we employ pattern recognition. Letters form words, words form sentences, sentences form paragraphs until we have a finished text. The currencies form trends, prices shift and skew, and in the end, we have the forex marketplace.

Just like there are many languages and ways of speaking, technical analysis has different methods, approaches, and ways to utilise a strategy and be successful. Nobody was born knowing a language and that includes the language of forex or how to trade currency. And learning how to speak is more difficult than getting into forex. The candlestick chart was invented in Japan prior to the s. It's an essential tool for forex technical analysis. Some inventions outlive their usefulness, others continue serving a purpose.

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The candlestick chart has stayed relevant for as long as it has for the same reason — it offers accessible and visual information to help you establish a good strategy for trading. The beauty of the candlestick chart is in the clarity of the information. Prices move up, down, and sideways. Increases are represented in one colour usually green or blue while decreases are most often illustrated in red. Forex technical analysis isn't about that. Currencies move all the time, often in seemingly chaotic ways.

The job of an analyst is to make sense out of that chaos and make the decision to buy or sell. Market patterns form these trends.

As a forex trader, you must keep your eyes on the market and identify which movements repeat and form a trend. It may sound easy, and the process is indeed simple in theory, but there are many hurdles you can face. The best way to visualise those changes in the market is to use charts. Up, down, and sideways are the directions in which a trend moves. Up and down are self-explanatory. Sideways describes a trend continuing without going up or down.

Tracking these movements and seeing where they repeat themselves is what forex technical analysis is about in a nutshell. At its core, technical analysis tells you when to buy and when to sell, which is the fundamental basis of any forex trading. The analysis part comes in when you look at the recent trends, pick a pattern and get the best time to buy or sell in order to make the largest amount of money you can. Corporations, armies, and countries operate using technical analysis.

As with the market, your personal income may go up, down, and sideways. Apply that thinking to managing your investment. And following the market and identifying trends is the best way to make the most out of your decisions. Since all the conclusions that can be reached through technical analysis are based on past trends, the process remains speculative.