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Technical analysis

Technical analysis is a financial market technique that claims the ability to forecast the future direction of prices through the study of past market data.

The main instruments of the technical analysis are:
  • charts
  • technical indicators.

Technical analysts believe that they can predict the future price action using historical prices and other trading variables.

The importance of technical analysis

Technical analysis is important, even if you do not believe that the future can be predicted using past market data, because price moves are caused by the changes in the supply and demand.

Changes in the supply and demand are caused by traders, who make their decisions based on different kinds of factors, and many of them are using technical analysis. So if many traders take the same decision based on some technical indicator, that will influence supply and demand, and the price will move.

Why isn't technical analysis enough?

Because:
  • not all market participants use technical analysis (many of them do not use any kinf of analysis because for some reason they simply have to buy or sell a currency)
  • not all traders who use technical analysis use the same methods and interpret the signals in the same way
  • technical analysis doesn't take into consideration fundamental factors, doesn't take into consideration inflation, politics, wars and so on...

 

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Please note!
Trading foreign exchange (FOREX) on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should not invest money that you cannot afford to lose.