The Basic Principles of Technical Analysis in the FX Market

  • Lauren 
Technical Analysis

There are certain things that you need to keep in mind before venturing out into the Forex market. These things come in the form of principles that evaluate the field of technical analysis. Combined with the right approach, you can examine and gain some big returns that will go a long way in helping you quit your job. The technical analysis here refers to an examination of the price patterns that can provide a clue about the future scenario. Due to that, these analyses remain to be of prime importance when it comes to the Forex market.

Support and Resistance

The first part of technical analysis starts with support and resistance. These are certain levels that price may tend to come in touch with. The support level here, for instance, touches the price, when it comes down due to a decrease. So resistance occurs in another way when the price begins to increase. Such differences need to be noticed, and you need to keep an eye out for it. As price has a particular habit of going in different directions, examination is the biggest source here.

Analysis

The importance of Indicators

Technical analysis tends to manoeuvre due to indicators, and there are mainly two types of them. These are lagging indicators and leading indicators. Lagging indicators come after an event has occurred and is often referred to as trend confirming indicators. They provide a relatively high success rate of signals and also trade fairly late. Moving averages, volume-weighted, Parabolic SAR are some of the most famous lagging indicators. When it comes to leading indicators, they are also known as oscillator type. They provide the signal before the potential reverse has occurred. These indicators have both positive and negative impacts, just like lagging indicators. Providing you with a heads up is the positive aspect, and false signals may be considered as the negative aspect.

Patterns

Price action technical analysis is another form of analysis that you require for a lot of reasons. The two types here are Candlestick patterns and Classical chart patterns. Candle patterns are specific formations that are created by individuals on the price chart. The two main aspects of a Candlestick patterns are reversal candlestick formation and continuation. The reverse tends to reverse the direction of the price and continuation tend to carry on the price in the same direction. Coming to classical chart patterns, they are as nearly as important as candlestick patterns. Classical chart patterns are also specific formations that are created by the general price. Their main patterns are reversal and continuation. Just like the ones mentioned above, reversal patterns are likely to be followed by reverse price movements, and continuation price patterns are followed by the continuation of the general trend.

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