In the world of foreign exchange, you will probably hear about technical analysis. It is just what the phrase means: you analyze and study the data with very technical or scientific means. You do not just give your own opinion, but you look at facts, study them, and then use them in formulas that can lead you to the result that you want.
In the case of foreign exchange, the result you want is the pattern that the trading makes in a given period. You want to use that pattern to make predictions. That is technical analysis explained at its simplest.
Is everything about Forex technical analysis fact-based?
Since there are data involved, technical analysis is mostly facts used in formulas. Numbers that result from a certain day of trading are facts that cannot be changed. Both people who have lost money and people who have gained money that day will have the same set of facts. It just so happens that their experiences about those facts are very different.
While Forex technical analysis may be fact-based, it is also based on a few assumptions. One of the main assumptions is that trading patterns will recur at regular intervals. In relation to this first assumption, another assumption arises, that is, currency value moves in trends.
Forex technical analysis is very fact-based that it does not bother itself much about generic guesses. The study no longer encompasses varying moods and opinions. It is as if the numbers have a life of their own, unaffected by outside influences.
How is Forex analysis done?
Technical analysis explained is about price charts and graphs. These mathematical representations are called studies. They are rightly called studies as you have to analyze these charts, graphs, and other forms of illustrated data to figure out what the trend is and what to expect in the next few days or even in the next 24 hours.
You take a certain timeline in foreign exchange trading of the currencies of your choice, and have to look at patterns that may emerge during that period. You can then base your predictions on those patterns. If you cannot find patterns on that smaller interval, you may have to extend your timeline.
What makes Forex technical analysis effective?
Some may say that Forex analysis is just one way of finding patterns that can create market predictions. Its advantage is not exactly on the many formulas that can generate market predictions, but, specifically, the factual way of generating that prediction. The purely unemotional and objective way of arriving at the prediction is what makes it effective.
You may expect that traders who make use of this analysis will be more careful with making decisions on whether to buy or sell a currency. Emotional traders may immediately sell most or their entire share of a currency that suddenly rises but is expected to fall based on gut feeling.
Forex analysis should be best explained as objectively as it is. You should find someone who can teach you how to do it with charts, graphs, and the whole deal. If you want a comprehensive way of learning how to do technical analysis, then you should undergo technical analysis training.
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