Forex Overview

Basics of the Forex Market

5. Technical Analysis

The technical trader is concerned with studying patterns of price movement on the chart in order to predict the direction of current and future trends in the Forex market. The decision to buy, sell, or hedge a current position – or to stay out of the market entirely – is made upon this analysis. Identify recurring patterns and make educated assessments to guide your decisions; should you initiate a trade at the current price, or set your system to open a position at a future price? The goal of the technical analyst is simple: to make profitable Forex trades by identifying past patterns that have historically led to a predictable outcome. However, the potential risk should always be considered. A recurring pattern is not precise and does not guarantee a desirable or expected price movement.

Tools of the Technical Trader

Using various chart types and technical indicators, more accurate predictions can be made from better analysis of the Forex market. Technical indicators use price, volume, volatility, and other factors to create measures of how the market crowd is behaving. Technical indicators can be utilized to help decipher underlying currents that are behind price action. Trend lines, support and resistance levels, reversals, and numerous patterns can also be used to track and identify trends. Once a pattern is recognized (not all are apparent), the Forex trader can decide whether to place a trade, or wait and monitor the price to see if the predictions were accurate.

This is the end of our introduction, but it is not the end of the educational resources we have to offer. Our Online Forex Course is a great place to go next if you want to learn more. It has a lesson on technical analysis that presents the basics of trendlines and common chart patterns.

If you are interested in taking an in depth look into specific technical indicators and how to use them, refer to our Technical Analysis Articles. Or, if you would like to experiment with technical analysis and technical indicators right now on our trading platform, VT Trader, you should sign up for a free Practice Account.

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Related Readings

Trendlines & Chart Patterns
Lesson 7 of our Forex Course presents the basics of trendlines and common chart patterns.

Technical Analysis Articles
Take an in depth look at the main technical indicators in use today.

Forex is an over-the-counter (OTC) or off-exchange market.