If you are considering currency trading in the Forex trading system, or you are already involved in Forex currency trading, you already know the importance of technical analysis in the forex market trading. You can find the detail in this post: Be a forex market trading expert
What is the goal of technical analysis in forex market trading?
In forex market trading the main goal of performing technical analysis is to predict profitable currency pair movements by analyzing price trends. The principles of technical analysis in the equity markets are the same as those in the forex trading system. You know the the only real difference between stock markets and currency trading market aka forex is that the Forex market trading is open 24 hours a day while the stock markets are not.
This means that certain analytics that take time periods in consideration will need to be adjusted for Forex currency trading. Other than that, any of these common forms of equity technical analysis methodologies can be used when currency trading:
- Elliott Waves: Developed by Ralph Nelson Elliott, this methodology is based upon the theory that market performance can be predicted by studying wave patterns that develop over a period of time.
- Fibonacci Studies: Developed by 12th century mathematician Leonardo Fibonacci, this methodology is based upon the theory that changes in trends can be predicted based upon prices interacting with lines based upon certain sequences of numbers.
- Parabolic SAR: Developed by J. Wells Wilder, this methodology is based upon the examination of prices in comparison to “stop and reversal” (SAR) numbers that indicate entry and exit points for a trade.
- Pivot Points: A mathematical formula used to determine when to exit a trade based upon the numerical average of the high, low and closing prices.
As I mentioned earlier in this article, the key difference between technical analysis in the stocks market, and technical analysis in the Forex currency trading market, is the fact that it is possible to participate in Forex market trading 24 hours a day, seven days a week. That key difference is also the primary reason that technical analysis works so well in foreign currency trading.
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In order for technical analysis techniques to deliver maximum results, there needs to be extended periods of time available for patterns to develop and repeat. Because the Forex market trading never closes, and currency pairs are traded around the clock, definable patterns develop more quickly and the technical analyst has a plethora of Forex currency trading data available to work with.
Technical Analysis although often difficult to study or understand is a vital part of stock investing and likely the case in Forex as well. Thanks for this post.
The three indicators mentioned in this article are pretty elementary. There are many chart patterns that can be predictive to where the price is moving. Many of the indicators and patterns apply to forex, equity or derivative trading. So learning how to do technical analysis is a must for any serious trader.
Very true.
I think if one is very careful, one can earn some hard cash from this especially nowadays since world currencies are fluctuating a lot.
True. Thats why you need forex markte trading edutation