Technical Analysis

Forex Technical Analysis Tutorial

What Is Technical Analysis?

Technical analysis is the study of a price movements, both past and present, with the goal of accurately predicting future market behavior. In practice, technical analysis is the examination of price action itself in isolation of all other factors.

On the forex, price action is the exchange rate variance exhibited by a currency pair. Technical analysis is used to place these movements into a manageable context by quantifying two primary characteristics: volatility and periodicity. By auditing how far and fast price has moved, tendencies in behavior often emerge. When they do, this information can become valuable when crafting informed trading decisions.

Understanding Technical Analysis

Technical Analysis Fibonacci Sequence Chart

Forex Chart Basics: Candlesticks And OHLC Price Bars

It was only a few decades ago that technical analysis was conducted on ticker-tapes and spreadsheets of pricing data. Now, modern forex chart analysis tools offer highly advanced functionalities.

A critical aspect of using charts properly is selecting the type that best suits your analytical approach. Two of the most popular chart types are Japanese Candlesticks and Open High Low Close (OHLC) price bars. Each is designed to convey a specific set of information to the user and serve as the backdrop for distinct trading strategies.

Understanding The Differences Between OHLC Bars And Candlesticks

Japanese Candlesticks

Since the late 20th century, Japanese Candlesticks have become a go-to technical tool for forex traders around the globe. With an appearance that quickly forwards a wealth of information, candlesticks are among the most referenced chart types in circulation today.

Get Up To Speed On The Utility Of Japanese Candlestick Charts

Forex Technical Analysis Tools: The Fibonacci Sequence

Upon choosing the right chart, the next step in building a strong analytical base is to integrate one or more forex technical analysis tools into your approach. Finding tools that complement your methodology is crucial when building a rock-solid strategic framework.

Several of the most popular forex technical analysis tools are based upon the Fibonacci Sequence. Developed in the early 13th century by Leonardo Fibonacci, the sequence is a series of numbers where each is the sum of the previous two.

Complete Your Coursework On Fibonacci Theory

Applying the Fibonacci Sequence

Applications of the Fibonacci Sequence are extensive in forex trading and often incorporated into technical tools and strategies. One Fibonacci-based trading strategy is the Favorite Fib, which utilizes momentum and can be applied to markets in a clear strong trend.

Applying the Fibonacci Sequence In Our Favorite Fib

Integrate Chart Patterns Into Your Trading

Chart patterns represent tendencies in price action and can be extremely useful in determining when to enter or exit the market. When combined with other indicators and clearly defined risk management parameters, they can be an invaluable part of almost any comprehensive trading plan.

In reality, there are hundreds of unique chart patterns, each with a specific function. While the diversity of options affords active traders freedom, these two have stood the test of time:


Doji

A Doji formation is a Japanese candlestick that has equal or nearly equal opening and closing values. Dojis come in several types and may be used to determine trend extension or pending reversal.

Learn More About The Doji

Triangles

Triangle chart patterns are formations that signify trend continuation, reversal or pending breakout. Ascending and descending triangles are viewed by many traders as being prima facie evidence that a directional move in pricing is on the immediate horizon.

Understanding Triangle Trading Strategies

Support And Resistance Levels As Part Of Your Strategy

Support and resistance levels are specific points or areas that restrict price action. Support levels serve as floors beneath falling prices, while resistance levels act as ceilings for bullish markets.

Areas of support and resistance are derived through a wide variety of methodologies including Bollinger Bands and trend lines.

Learn The Ins And Outs Of Support And Resistance

Bollinger Bands

Created by John Bollinger in the 1980s, Bollinger Bands (BBs) measure price elasticity. To do so, they compare periodic high and low values relative to a moving average. A set of BBs is represented as a chart overlay of an upper, lower and middle band.

Making Money With Bollinger Bands

Trend Lines

Trend lines are one of the most basic tools that forex technicians utilize. A trend line is simply a ray that connects a series of periodic highs or lows. When a trend line is constructed, a market’s direction is easily discernible—as is an actual point of dynamic support or resistance.

Identify Market Direction With Trend Lines

The Value Of A Technical Analysis Tutorial

A technical analysis tutorial can be an invaluable resource for trader development and may be presented in a variety of ways, including expert blog entries, webinars and in-person training sessions. If you don’t have direct access to a market professional, a great place to build a strong knowledge-base is through FOREX.com’s educational materials.

Sharpen Your Forex Knowledge


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