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Technical Analysis

Forex Technical Analysis


Technical analysis has to do with what has actually happened in the market and not with what should happen


Technical analysts study the variations in price and volume, and from them create graphs (derived from the actions of market agents) to be used as the main tool. The technical analyst does not care much about any of the "big picture" factors that affect the market, as the fundamental analyst does, but concentrates on the market activity for that instrument.


Technical analysis is based on three underlying principles:


1. Market action takes everything into account

This means that the real price reflects everything that the market knows and that could affect it, for example, supply and demand, political factors and market climate. The pure technical analyst only deals with price changes, not with the reasons that lead to changes.


2. Prices vary according to the trend

Technical analysis is used to identify patterns of market behavior that have long been considered important. In many conceived patterns, there is a high probability that they will produce the expected results. Also, there are recognized patterns that are constantly repeated.


3. History repeats itself

Graphic formations have been recognized and categorized for more than 100 years, and the way in which many patterns repeat themselves leads to the conclusion that human psychology changes little over time.


List of categories of technical analysis theory:


Indicators (Oscillators, eg Relative Strength Index or RSI)
Number theory (Fibonacci numbers, Gann numbers)
Waves (Elliott Wave Theory)
Gaps (maximum-minimum, open-close)
Trends (moving average tracking)
Chartist Formations (Triangles, Shoulder-Head-Shoulder, Channels)


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