Whether you are a just considering currency trading in the Forex market, or are already involved in Forex currency trading you will want to know about technical analysis. Many investors use technical analysis to help them make investment decisions in the forex market.
The role of technical analysis in currency trading is to predict profitable currency pair movements by analyzing price trends. This is the same principles of technical analysis in the equity markets. Because the forex market is open 24 hour certain analytics that take time periods in to consideration need to be adjusted. Outside of that, any of the common forms of equity technical analysis methodologies can be used when currency trading:
One methodology the Elliott Waves, developed by Ralph Nelson Elliott is based upon the theory that market performance can be predicted by studying wave patterns that develop over a period of time.
Fibonacci Studies — Developed by 12th century mathematician Leonardo Fibonacciis based upon the theory that changes in trends can be predicted based upon prices interacting with lines based upon certain sequences of numbers.
A method based upon examination of prices in comparison to “stop and reversal” (SAR) number that indicate entry and exit points from trades is Parabolic SAR — Developed by J. Wells Wilder
Pivot Points – Are a mathematical formula used to determine when to exit a trade based upon the numerical average of the high, low and closing prices.
The key difference between technical analysis in the equities market, and technical analysis in the Forex currency trading market, is the fact that it is possible to participate in Forex trading 24 hours a day. That key difference is also the primary reason that technical analysis works so well in currency trading.
For technical analysis techniques to deliver maximum results, there needs to be extended periods of time available for patterns to develop and repeat. Since the Forex market never closes, and currency pairs are traded around the clock, definable patterns develop more quickly and the technical analyst has a plethora of Forex currency trading data available to work with.
More data means more accurate forecasting results; technical analysts can see better results, in quicker time, when combining technical analysis and Forex currency trading.