Lesson #8: Technical Forex Analysis
Technical forex analysis is based on historical behavior of the forex market and therefore we can say it consist of taking strategic decisions based on what happened more than on what we think it would be.
What does technical forex analysis consists of?
It studies past price and volume movements and from that data creates charts that can be used to take strategic decisions. It looks clear how technical analysis does not take into consideration events that might affect the forex market and that are highly considered in the fundamental forex analysis.
The actual forex rates are a reflection of a combination of factors such as supply and demand conditions, political factors, and market sentiment. All of these factors are included in technical forex analysis, but are not explicitly expressed and therefore we might risk to not understanding a certain trend in interest rates without knowing the scenario that caused it.
If you decide to use technical forex analysis to take strategic decisions make sure to look into forex interest rate changes and understand what caused them. Based on 100 years of close monitoring of the markets, it is possible to say that history repeats itself and therefore you could predict the movements of the market simply by using technical forex analysis. On the other hand, history is characterized by big events modifying the “status quo” and therefore you should include them in your analysis.
After all of that theory, you might still have one important question for us: Should I use fundamental or technical forex analysis?
Many forex traders use a combination of technical analysis as well as fundamental analysis since it grants more flexibility and integrates technical forex analysis with the connection to everyday events.
We suggest that you start trading using the method that best fits your needs and test strategies using a demo account. PaxForex suggests that you start looking at trading patterns through technical analysis and then take a trading decision after you get the support of the indicators used in fundamental analysis.