Basic Forex Education_8. Technical Analysis In Forex

Lesson 8: Technical Analysis in Forex

The theory for technical analysis is based on the presumption that you can
forecast future price movements by studying historic market data. As it is believed
that all current market information is reflected in the price, you can assume that all
you need to make a trade is price action.

Technical analysts study charts to look for patterns and believe that in similar
situations pricing will act the same way as before. For example, if a price had
bounced several times previously, a technical analyst would think it will also do the
same the next time the price reaches this level and so he sets his sell orders here.

The more traders that look for certain price levels and patterns, the higher the
probability that these patterns will play out the way they think. Why is that? Because
technical analysis is based on psychology.

A chart is nothing more than a picture of human emotions. The market moves
because of two primal emotions: greed and fear, which, in effect, compels humans to
repeat past triumphs and mistakes.

Remember; technical analysis is very subjective. Just because you see a
pattern on the charts, that doesn’t mean the rest of the traders will interpret it in the
same way.