Introduction To Technical Analysis

FOREX analysis is divided into two types: Fundamental and Technical. Fundamental analysis attempts to predict movements in currencies by
examining current political and economic events.
Technical analysis uses historical economic data to predict movements in the FOREX. These two sections will examine the principles of technical analysis and the tools involved. Basic Principles

Technical analysis is based on three assumptions:
1. Price movements are a result of all market forces combined. Things that can affect currency prices include political events, economic conditions, supply and demand, seasonal variations and weather conditions. The technical analyst, however, is not concerned with the reasons for market movement, but rather, the movements themselves.
2. Currency prices follow trends. Many market patterns have been recognized as having predictable consequences.
3. Price movements follow historical trends. FOREX data has beencollected for over 100 years and patterns have emerged over time. These patterns are based on human psychology and the way people react to certain sets of circumstances.
Is Technical Analysis Necessary?
Most FOREX day traders rely heavily on technical analysis and may use fundamental analysis to support their trading strategy. A major advantage of technical over fundamental analysis is that it can be applied to many different markets and currencies at the same time.
Fundamental analysis requires in-depth knowledge of the political and economic conditions of a certain country; therefore it is less likely that any one trader can do proper fundamental analyses on more than a few countries. The beginner trader may be put off by the seeming complexity of technical analysis and wonder if it is necessary for FOREX trading. As with any investment, FOREX trading requires a strategy. Although any strategy is possible, technical analysis is a proven method for predicting movements in the FOREX. Does that mean it’s a sure thing? Nothing is 100% certain, and currency prices are affected by a variety of forces.

This is why many traders use a combination of technical and fundamental analysis to plot their trading strategies. AvailabilityEvery FOREX online broker should provide access to a wide variety of charts for technical analysis. Some charting software is available free of charge while in-depth professional charts may carry a monthly fee. Charts can be viewed by various time scales and provide detailed information about price movements as well analytical overlays.

Charts can be zoomed in to the tick level or zoomed out to see the broad picture over a period of months or years. Charts are updated in real time. FOREX charts may be available on your broker’s web site or may be included as part of their trading software. Before beginning in FOREX trading it is a good idea to become accustomed to market behaviour by following charts for a period of time and studying their movements and learning about trends. Many brokers provide practice accounts that can be used by beginners to place ‘paper’ bids – no real money is exchanged. These practice accounts familiarize the beginning trader with FOREX charts and market movement while at the same time allowing him to become acquainted with the trading software a particular broker uses.


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Investopedia Explains Fundamental Analysis...

Fundamental analysis is about using real data to evaluate a security's value.
Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security.

For example, an investor can perform fundamental analysis on a bond's value by looking at economic factors, such as interest rates and the overall state of the economy, and information about the bond issuer, such as potential changes in credit ratings. For assessing stocks, this method uses revenues, earnings, future growth, return on equity, profit margins and other data to determine a company's underlying value and potential for future growth. In terms of stocks, fundamental analysis focuses on the financial statements of a company being evaluated.

One of the most famous and successful users of fundamental analysis is the Oracle of Omaha, Warren Buffett, who has been well known for successfully employing fundamental analysis to pick securities. His abilities have turned him into a billionaire.

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