Technical analysis is the identification and evaluation of past prices in order to identify trends. These trends act as a benchmark for future price sequences in the market. The quality and quantity of commercial transactions in a market is majorly determined by price, demand and supply.
The price of a commodity in any market is a function of the interaction between demand and supply. In simpler terms, price is actually the point at which the degree to which a commodity is available meets the extent to which it is needed.
When supply is greater than demand, the price sinks. However, the price rises each time the demand of a product outweighs its supply. The moderate upward progression of the price is called a bull trend while its gradual downward decline is known as a bear trend. A standard price movement to the side which results in it remaining generally constant is referred to as a range.
Technical analysis identifies and uses these trends to predict future price estimates. This is done using technical indicators as well as charts and timeframes
Success in the forex market is based on the ability to determine when to buy or sell a particular currency. While it is true that there are major elements in the forex market that cannot be predicted, forecasting is necessary because the nature and behavior of price is not entirely random. This means that there is a pattern to be found even in the erratic and unsystematic price configurations from time to time.
Technical analysis is therefore essential in determining price probabilities so as to enable traders to either buy or sell when the estimates are in their favor. It basically enables traders to conduct a cost-benefit analysis each time they consider dealing in the market.
It is of vital importance to note this fact so as to prevent traders from using technical analysis to obtain total exactness and accuracy in future prices. Such behavior may lead to frustrations in the long-term since it attempts to replace the diligence and wit required in forex trading with technical analysis.
The use of technical analysis to determine market forecasts has basically become an unwritten rule for traders in the forex market. While it is not mandatory to use it in trading, it is virtually impossible to consistently succeed in the long term without it. This is because it gives its users a competitive advantage over its non-users since it enables them to identify breaks in the market almost in real time which in turn gives them direction on how they should trade. Technical indicators are actually the elements of technical analysis that provide such reliable and timely assistance to traders since they are simple and easy to learn.
First-hand market information in good time is perhaps the most important asset for any trader hoping to make continuous profit in the forex market. It is thus essential for traders to know where and how to gain access to this information. It is also equally necessary for them to learn how to sort out this acquired market data in order of importance so that they can use what is relevant and dispose what is not.
While there are other sources of such information, technical analysis has a dual advantage in the same. This is because it not only provides valuable investment intelligence on currencies but also improves the trader’s sharpness in trading. Technical indicators as well charts enable one to understand the technical details of the forex market fairly quickly.
Price Patterns as well as different trading methodologies are easily accessible and understandable through technical analysis. This means that exposure to these elements can easily contribute to the profitability of traders by providing them with vital information and effective training for success in the forex market.
Technical analysis is a proven method of analyzing market trends and forecasting price estimates in the forex market. While it does not give exact values, it is able to provide foresight to traders thereby enabling them to make informed investment decisions. It is therefore of great importance for a trader to understand the role it plays in the market in order to enjoy the merits that come by using it.