There are so many terminologies related to the Forex markets. Before starting Forex, you have to highlight the definition of technical analysis in Forex markets. It has an important role to reach successful trading.
Technical analysis is the study of historical price action in order to identify patterns and determine probabilities of future movements in the market through the use of technical studies, indicators, and other analysis tools. It will help to determine when and where to enter a market, but also how to get out of a market.
There are two things that technical analysis boils down. The first is identifying the trend. The second is identifying support/resistance through the use of price charts and/or timeframes.
Markets can only do three things. There are moving up, down, or sideways. Typically, prices move in a zigzag mode. As a result, price action has two states:
- The range (sideways) is when prices in zigzag sideways
- The trend is when prices either zigzag higher (Up Trend or Bullish) prices zigzag lower (Down Trend or Bearish)
As an example, here is the figure of the technical analysis.
After seeing the graphic above, we can use technical analysis to know the movement of markets. It is based on the theory that the markets are chaotic. Chaotic means no one can predict what will happen for sure. But at the same time, price action is not completely random. Thus, you still can see the possibilities in the markets. It is supported by the Chaos Theory “within a state of chaos, it has identifiable patterns that tend to repeat”.
Chaotic behavior is observed in nature, specifically in the form of weather forecasts. For instance, most traders will admit there are no certainties when it comes to predicting exact price movements. In consequence, successful trading is not about being right or wrong. It is all about determining probabilities and taking trades when the odds are in favor.
To identify a trending market, traders usually utilize variously trendlines and patterns. Two types of trending markets are short-term and long-term trending markets. Traders can use support and resistance to find out the right time to purchase. If the security stays in its traded patterns, then it can be sold out.
