Forex Technical Analysis Principles

The term "Technical Analysis" would refer to the method in which a trader predicts various price flows and upcoming market trends via the use of charts that contain previous market action. In using this method, one observes previous market occurrences and not what is bound to happen later on. The instrument pricing and trade volume are taken into great consideration here as charts are created from such data which is then used as an important tool for the trader. If one is experienced in analyzing the flow of the market, then technical analysis gives him a big advantage as one can be able to observe at the same time, various market instruments and the markets themselves. In mentioning this, one must know that there are three important principles in Technical Analysis.

The three important principles of Technical Analysis are as follows:

Firstly, that the market action discounts all! This would mean that actual pricing is the outcome of all that is available to the market affecting it, including political factors and economic factors like supply and demand. If a country is in economic or political disarray, this would affect the rise and fall of the prices of goods found in the country, and would in turn, affect inflation rates, and of course, currency prices. One can usually notice that on news reports and financial reports, the broadcasters would stress how the currency of a particular country would either go up or down, depending on the various factors affecting it, especially on a political and economic level.

Secondly, the theory that price moves in a trend. Here, one may use technical analysis in order to identify various patterns of the behavior of a market that are known to be significant. There is always an existence of supply and demand, and various recurring factors can be noted.

Thirdly, the fact that history always repeats itself! In chart patterns of the Forex market that have been noted for more than fifty years, it is seen and observed that human nature does not change a drastic extent over long periods of time. Various patterns in charts of different years are repeated. Political and economic situations in a country may always repeat itself. Sometimes, a country may experience prosperity when it comes to its political and economic arena; while other times, it may experience a huge slump. All these factors may happen time and time again, and there is really no definite means of controlling it as so many other factors would affect it.

Due to the idea and theory of the aforementioned principles of technical analysis, one may be able to understand why currency prices are the way they are.