Technical analysis is the study of charts and indicators to determine the past and future price movement of a currency pair. Unlike fundamental analysis technical analysis relies on the use of charts and mathematical techniques to examine various aspects of a currency pair’s price movement. With the growth of the Internet technical indicators which were once available only to brokers and professional traders are now available to any trader with a computer.
All market fundamentals are reflected in price data. Moods, differing opinions, and other market fundamentals need not be studied. History can repeat itself often in regular fairly predictable patterns. These patterns, generated by price movements, are called signals. A technical analyst's goal is to uncover a current market's signals by examining past market signals. Prices move in trends. Technical analysts believe price fluctuations are not random and unpredictable.
Technical analysis provides information on the best entry and exit points for a trade. On a chart the trader can see where momentum is rising, a trend is forming, a price is dipping or other events are developing that show the best entry point and time for the most profitable trade. With the constant movement of various currencies against each other in the forex market most traders will focus on using technical indicators to find and place their trades.
Technical analysis requires studying different types of charts such as the hourly or daily charts, knowing which technical indicators to use and how to use them. Computers and the Internet have made this process much easier. Most brokers provide basic charts and technical indicators for free or at a very low cost. One way to avoid getting frustrated by all the lines, colors, and graphics is to focus on using only a few indicators that will provide you with the information needed.
The primary focus of technical analysis is on the movement of prices. Charts show how prices are moving (or not moving), when prices are trending, and the strength of those trends. Volume, oscillators and momentum give a clearer picture of market action, and this information can be obtained at a glance. Unlike fundamentalists, technicians do not use economic reports that analyze the demand for a currency.