Overview of technical analysis
Forex market analysis has three categories. Technical analysis is the most widely used analysis in over the world. The technical analysis comprises the use of a chart which many people think is a good option because by watching chart we can know the past movement. Right?
Yes, it is what technical analysis is all about. Technical movement studies the price of the currency pair in different markets. They study the old price and the movement of the market and try to guess where the price level could be based on the old historic price and potential data.
But do not think, technical analysis is about gut feeling. It is about the movement of the past in the market. Let us look at this chart for an example.
Figure: Technical Analysis
Yes, this the technical analysis, which involves a chart around. You can see that the person is showing the traders the repetition of the historic price. The market has a key support and a resistance which it finds hard to break. Based on these data of the market, the traders can find out, what was the price level of that time. Based on these data, they will set their trade price level and expect the market to do so.
It is the like old Latin proverb you have been hearing from your child age. “History repeats itself” Well, here it is not history, but the price level. And there are times, when you will see that, the market movement is not like the past movement. It breaks the resistance and goes to a new price level. Most of the market traders do technical analysis of the forex market. It is like the currency exchange shop in the mall. They know when the currency price of dollar will be cheaper and when it is profitable to sell at a high rate.
Technical analysis, basically, is the use of the chart to graphically represent and understand how the market move in the past. But it is very subjective. What you might have thought the price level is not the same when another person is looking at the same chart. It depends from person to person. Each person has their own ideas and calculation going through their mind, and each own place their trade differently, though they are looking at the same graph like you.
In simple, keep it in mind that, technical analysis uses a chart for calculating the market price level movement of the past. It tries to connect the past level movement with present and traders expect the price level to follow the old pattern. Not every time it happens. But most of the time, the pattern is same as the old pattern
This analysis is not called the technical for a graphical reason. But there are many other factors included. The chart only shows the condition of the historic old market. How the market movement will move is not predictable. But the price level does show the symptoms of the past price level sometimes!