What is technical analysis in forex? Put simply, it is a means of predicting future pricing changes and market developments chiefly by utilizing charts. It’s sole concern is in how the market has performed, instead of what theoretically should occur. Charts are constructed using actual past numbers.

The charts are often an important analytical instrument. Many experienced traders use them to track several markets at the same time.

Three Distinct Technical Analysis Facts

Market prices movements are not random. In other words, there are pricing trends that can be studied and extrapolated out to predict future movement.

Similarly, trends reoccur. Again, the market is not random. Patterns repeat themselves. Trends that have developed in times past will appear again. As the old saying goes, “there is nothing new under the sun.”

Finally, the forex market, just like any other financial market, has already taken every possible factor into account. This is more true in forex than any other market due to the volume of activity.

Some Technical Analysis Trueisms

According to some successful traders, using technical analysis is the surest means to making money in the markets. In fact, numerous well-known traders have done just that.

Many successful and experienced analytical experts scoff at the notion of depending too heavily on technical analysis. Warren Buffet is quoted as saying, “If past history was all there was to the game, the richest people would be librarians.” This points to the limitations of using technical analysis techniques in your forex trading.

The same techniques can be employed to predict pricing changes for any financial instrument. Therefore, techniques used in stock trading or other markets will be useful for the forex trader.

Technical analysis focuses on prices. True technical analysis avoids decision making based on subjective factors.

Experienced traders develop “triggers” that are early warning signs of changes about to take place in the market. The triggers are patterns themselves, or more precisely, the beginning stages of a new pattern. The idea is that the triggers point to specific market movements that will occur in the short term.

On the flip side, some observers note that these “triggers” sometimes make their appearance while it is too late to do anything about them. Obviously this rather defeats the purpose.

Conclusion

As you seek to make use of technical analysis and predictive patterns in your forex trading, be aware that these patterns have been given much publicity recently. Therefore, most traders know about them and the inexperienced ones tend to take action on them without thinking through the all the implications. This has the effect of creating the classic “self-fulfilling prophecy” as large quantities of trades are conducted in response to various events or news.