What is Technical Analysis?

23 Jan 2010

Technical analysis on the prediction of exchange rate movements based solely on statistics and price patterns Simply put, technical analysis is the analysis of the market based on price action. While fundamental analysis looks at economic factors and geopolitical circumstances (such as economic numbers, capital flows, and the major political events), in an attempt to predict exchange rates, technical analysis is based on the statistics and patterns in price movement for its forecastTechnical analysis on the prediction of exchange rate movements based solely on statistics and price patterns Simply put, technical analysis is the analysis of the market based on price action. While fundamental analysis looks at economic factors and geopolitical circumstances (such as economic numbers, capital flows, and the major political events), in an attempt to predict exchange rates, technical analysis is based on the statistics and patterns in price movement for its forecast. Technical analysis has gained popularity in recent history, especially the development of computerized trading continue to develop and active traders continue their strategies to best assess what is happening in the market at any time to refine. In today's marketplace, technical analysis has become an essential tool for every aspiring entrepreneur.
Why Technical Analysis Works •
Extremely popular, and thus provides insight into what many traders do • more clear and less controversial than fundamental analysis • A simple way to make commercial decisions Many traders believe that technical analysis is a self-fulfilling prophecy - in other words, it only works because it is popular and is used by many traders. For example, many technical traders put a 20 days moving average line on maps because the moving average is not statistically significant itself, but because it is a very common indicator used by active traders in all sizes.
The reason is simple: as so many traders make decisions off moving averages and other indicators, then the indicators should be closely monitored because they offer insight into what a strong majority of traders in the market are doing. For this reason, traders focus on the most popular indicators in the business community, and must be used in the most traditional way. This is the best way of tapping into the "psychology" of the market - in other words, it is a simple but highly effective way to understand what other entrepreneurs are and how to move the market because of it. Contrary to popular belief, it is not a study that complex mathematics or computer algorithms. It is rather a study to look at other traders use the same tools to understand what is happening in the market. Below is a list of the most used indicators, all of which will be discussed in the following lessons:
• Key Candlestick Patterns
• Fibonacci retracement
• moving averages
• RSI
• Stochastics
• MACD
• Bollinger Bands
While it may seem intimidating, technical analysis is actually quite simple - often much simpler than fundamental analysis. It requires only an abundance of the two qualities most needed for a successful trader: discipline and patience.
Different Time Frames
Technical analysis tools are valid at all times, but we recommend the daily charts for most of your analysis. Medium-term positions based on daily charts, tables an hour for the use of more precise entry points, have two advantages over short-term positions at 5 or 15 minutes charts. 1) The spread is less important for longer term position. 5 pips of a price target of 20 was a huge obstacle to overcome in the trade after trade. 5 pips from a 100 pip target is manageable. 2) longer term charts are statistically more reliable because they are based on more data.
Indicators have a higher degree of confidence on a daily chart than one hours 15 minutes chart or graph. Trading on a weekly or monthly chart would probably accurate from a technical standpoint than a daily chart would be, but a slower time frame means less accurate access, and the wider stops needed to chart a monthly trade are often outside the capacity many accounts. We recommend as a general rule, do not risk more than 2% of the balance of your account on a single trade, which is difficult with a monthly or weekly chart


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