A framework that is used to study market and stock trends by forex traders is referred to as Technical Analysis. The theory that works behind such an analysis to look into historical price practices and then predict the current market conditions and price movement.
The concept of Technical Analysis
Talking in general terms, the interpretation that is obtained through technical analysis always remains same irrespective of the commodity being assesses. The concept says that historical practices can determine future action. There could be wide varied techniques of technical analysis but in this article we would help you with forex specific trends and aspects associated with such analysis
The evidence associated with such an analysis that all the current market knowledge and information is expressed in terms of price. It is rightly said that history always seems to repeat itself so is the underlying idea behind technical analysis. If price can be a factor to reflect information, hence it will also determine the trading practices that need to be followed today.
The goal behind Technical analysis in Forex Market
Currency accuracies are mostly checked through computerised softwares in all major banks and financial organisations which are associated with forex market. Though the checking is based upon well designed algorithms there is limited probability of overlooking any inconsistency. However the political, economic and social factors are responsible for affecting price in any market and can only be analysed through technical approach.
Price is a statistical factor which can never be monitored without any statistics involved. Hence the medium that is used for technical analysis is pie charts and graphs. They act as important visual tools which can easily express historical data in the simplest manner possible.
Another goal that is kept in mind by Forex traders during technical analysis is to check the direction of a pair in market. This can involve a pair travelling sideways or limited to a range. For example all major currency pairs like USD-JPY, USD-CHF and EUR-USD have greater trend characteristics. On the other hand currency crosses that do not involve U.S Dollar have shown greater probability of range boundary.
Different approaches and combination can be used by traders to predict the future direction of currency exchange rates. The techniques involved in currency analysis practiced by forex traders can be another wide topic that requires intensive study in itself and can be studied through tutorials available online.