currencyPredicting where the market will go is not an easy task but some make it their living.  Predicting the price movements and future trends of the foreign exchange market can sound even more daunting to the beginner trader.  Forex technical analysis involves just this type of predicting and doesn’t have to seem intimidating.  Once you develop the necessary well of knowledge, you can take off in the world of  foreign markets.

Learn the basics of Forex trading here.

What is Forex?

Forex is the short version used to refer to the foreign exchange market. The foreign exchange market involves trading done by investors and speculators. For example, let’s say the U.S. dollar is expected to weaken in value relative to the euro. A forex trader in this situation will sell dollars and buy euros. If the euro strengthens, the purchasing power to buy dollars has now increased. The trader can now buy back more dollars than they had to begin with, making a profit.

This is similar to stock trading. A stock trader will buy a stock if they think its price will rise in the future and sell a stock if they think its price will fall in the future. Similarly, a forex trader will buy a currency pair if they expect its exchange rate will rise in the future and sell a currency pair if they expect its exchange rate will fall in the future.

The Exchange Rate

The foreign exchange market is a global decentralized marketplace that determines the relative values of different currencies. Unlike other markets, there is no centralized depository or exchange where transactions are conducted. Instead, these transactions are conducted by several market participants in several locations. It is rare that any two currencies will be identical to one another in value, and it’s also rare that any two currencies will maintain the same relative value for more than a short period of time.  In forex, the exchange rate between two currencies constantly changes.

Let’s Dig into Forex Technical Analysis

Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action. Forex technical analysis is concerned with what has actually happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool. One major advantage of forex technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles:

Tools for Forex Technical Analysis

Forex charts are based on market action involving price. The following are tools for forex technical analysis:

The foreign exchange market technical analysis is driven by concentrating on the activity of that instrument’s market.  It isn’t concerned too much with any of the larger factors affecting that market.  Predicting can be fun if you know what you’re doing!

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