Technical analysis is a technique used to forecast the future direction of prices through the study of historical market data, primarily price, volume and open interest.
Technical traders use trading information (such as previous prices and trading volume) along with mathematical indicators to make their trading decisions. This information is usually displayed on a graphical chart updated in real time that is interpreted in order to determine when to buy and when to sell a specific instrument.
A simple way to understand Technical Analysis is to think of it as studying the history of price movements and trying to determine the potential future price movement of an instrument. Following an old saying “History tends to repeat itself”, technical analysts look for price patterns which have been repeated in the past as they believe there is a possibility for them to be repeated in the future.
How do they do that? By analysing the charts, going back in history regarding an instrument’s price movements, and identifying possible patterns. Price charts tell many stories and many forex traders depend on them in making their trading decisions. Charts can point out trends and important price points where traders can enter or exit the market, if you know how to read them.
Click here to view some samples of trading strategies based on technical analysis