Technical analysis can be considered as one among the major tool for forecasting about the forex market and the currency trading rates of various currencies that are associated with the forex market and can help a lot in making profitable trading. This analysis is done mainly in aiming to find out the trend that exists in the movements of currency trading rates of the various currencies. The technical analyst studies the effects of the changes that occur in the market. Fundamental analysis is another kind of analysis that exists in the market. Most of the successful traders combine both technical analysis and fundamental analysis for making trading decisions in the market. The strategy adapted in technical analysis is to make use of the historic data and plot graphs based on which predictions are made on the changes in the currency trading rates as well as on the trends that may appear in the market. The technical analysis is all about the things that have already happened in the market not about what should happen in the market. The major components that are considered for technical analysis are the price of the currency and the volume of the currency traded
Principles behind Technical Analysis
The first principle on technical analysis states that the actual price of the currency depends on the various factors that could affect the market. According t the changes in the factors the currency trading rates of the currencies also changes. The next principle says that the prices of the currencies change based on a particular trend or pattern. Identification of this pattern is the task of a technical analyst. Most of the identified patterns produce expected outputs. Some of the patterns repeat on a particular way. The third principle on technical analysis states that the patterns in the forex market repeat itself after particular intervals of time. The technical analysis even helps in identifying the manner of the repetition seen with patterns. The patterns have already proved successful in the past and you should trade in the forex market with the hope that the pattern will be successful in the future too.
Role of Technical Analysis in Determining the Currency Trading Rates
Technical analysis can be helpful in finding out the pattern that exists with the changes in the price of the currencies. You can use technical analysis for indicating the movements of assets that are present in capital market for trading. Technical analysis makes use of the previous data for focusing on the current happenings in the market. Technical analysis is valid for any price level. The technical analysis is based on prices of the currencies and it makes use of various tools for studying in deep about the trend that existed in the market. Signalling indicators are used in technical analysis for showing the end of a particular trend.
Cons of Technical Analysis
Many of the critics say that the Dow approach itself is a failure and technical analysis has mostly proved to be late and the analysis that is done for a shorter period of time appears noisy.