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Forex technical analysis methods

Forex technical analysis is one of the main approaches which traders use to predict the price action. The principal difference between technical analysis methods and the fundamental analysis approach is as follows. The technical analysis looks for patterns in price movement without considering the global factors that influenced it.

We can divide all of the technical analysis methods into several groups:

- Chart trading methods. We can predict the price movement just using a price chart or its transformed image. Traders mark resistance and support levels, channels and lines. They also apply a range of technical analysis patterns. Chart trading methods have been the most popular on the Forex market for a long time. They are easily understood and do not require complex and accurate mathematical calculation.

- Technical indicators. Traders have been using most of them from the beginning of the last century. However they are commonly used only last ten years due to the Internet and the software which can calculate them easily. There is a wide range of Forex technical analysis indicators in the marketplace:

  1. Trend indicators show the strength and direction of the current trend.
  2. Volatility indicators show the strength of the price fluctuations per unit of time. They evaluate “mobility” of a financial instrument.
  3. Oscillators show the speed of price movements over time. Oscillators warn traders of the end of a trend. This type of technical indicators includes the most well-known oscillators such as Momentum, Relative Strength Index (RSI), Stochastic Oscillator and many others.
  4. Indicators used for identifying trend and support or resistance levels.

- Methods based on probability theory. Traders use methods of probability theory to measure strength of a trend and its end. 

- Methods based on a market structure. Traders believe that the price movement has some clear structure.

At least half of traders all over the world use trading strategies based on technical analysis in Forex. You have not to use all the indicators, but a deep research of some of them will help you to succeed.

Take a closer look at the Forex technical analysis basics:

 

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