The term “Technical Analysis” can be defined as the way to predict the future price of an asset based on its price’s history. In other words, you are able to speculate whether the price will rise or fall after taking into consideration the previous movements of the asset for a certain period of time. Technical analysis can be applied to a lot of different financial systems, but it is especially useful in Forex. The Foreign Exchange markets have such a large volume of data for just 24 hours that you are able to make your analysis based on that short time frame since there would have been a lot of movement.
The technical analysis is presented as a chart and can be understood easily once the general idea is grasped. One of the most popular tools that can be combined with technical analysis is TRENDS (link). Traders are able to predict the future movements of the price with exceptionally high accuracy.
Technical Analysis works for Forex well because it has the largest volume of data, but the same tools and analysis can be applied in other markets as well. A lot of Novatraders traders analyze by using this method a large variety of assets, which are spread into different markets – Commodities, Equities, Currencies, and others.
All information about the stock markets is immediately included in the Forex charts and prices. With today’s well-developed and advanced technology it is almost impossible for Forex markets to show any discrepancies or older data. All markets are constantly monitored by supercomputers around the world and even there’s a small possibility that an incorrect data has been released publicly, it is usually fixed in a matter of milliseconds. This is really important for technical analysis because, in order to get the best possible results and maximum accuracy, traders need large amounts of correct information, delivered on a regular basis.
A great challenge for traders is to determine whether a currency pair (or any other asset in that matter) is trending or not. That’s where technical analysis comes in hand, showing if there’s really a trend or not. Looking back in the history of an asset’s price, using this type of analysis, traders draw a line between two important price points in the past (usually the point at which the price stopped falling and started rising and vice-versa). By using this tool, it can be determined where the trend has started, for how much it could keep going and eventually when it may be ending.