Forex Technical Analysis emerged at the end of the 19th century, with the study of Wall Street market trends. This instrument is precisely the study of the financial markets, based on data, quotes, price patterns and future trends. Unlike fundamental analysis, which focuses on the economic, political and social context, technical analysis is purely mathematical and algorithmic, always based on past patterns and data. Thus, this type of study is better suited to short-term positions and trades.
In technical analysis, charts are very useful as they serve to anticipate market movements. In general, there are several sources of information to consider: open interest, which includes futures and options, trading volume, and price or quote.
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The importance of Forex Technical Analysis for the short-term investor
In operations that last hours or even minutes, there is not much time for analysis. For this reason, it is always better to have a series of tools configured in advance that facilitate decision-making, before starting our session. In this sense, technical analysis can facilitate this task.
The so-called day traders , those who open and close positions quickly (to buy bitcoin , for example), use daily charts (on the IBEX 35 in real time or the Litecoin/Euro , to name a few examples), as well as economic and intraday calendars. It is a completely different world for day traders than for investors who buy securities and hold them for extended periods of time. Meet and learn about Ethereum Trading.
Forex Technical Analysis
The key within the Technical Analysis on currencies is knowing how to draw support and resistances can give us an idea of what the most probable evolution of the markets may be. This will help us find the trends in the time horizon that we use for our trading.
We start from the basis that Technical Analysis is not an exact science, since it is a type of analysis that measures and studies what is the most likely scenario that can occur in a given period of time. 1 minute, 5 minutes, 30 minutes, 4 hours, 1 day, whatever.
When we talk about currencies, we obviously have to talk about volatility and high liquidity, therefore they are assets with which we can operate in any timeframe (time horizon). We can talk about the long term, although it would be more linked to currency risk coverage and also to the medium term, but , above all, we are talking about short-term trends and, in most cases, in a more aggressive short-term . It is a very good asset to work with Scalping, due to such high liquidity, since it usually makes very aggressive movements in a very short space of time, something that scalpers crave in their daily trading.
The main points of the Technical Analysis for Forex are:
Identify support and resistance .
The high liquidity in the Forex market makes the accumulation of money and paper important and, therefore, we see important levels of support and resistance.
Identify trends .
Those support and resistance levels make it possible for us to see fixed or dynamic levels, thus leaving bullish, bearish or neutral trends. This is the main argument to be able to see the evolution of the markets.
These trends and the changes in them give rise to the formation of chart figures, which mark the possible continuity of the trend or, on the opposite side, the possible change in it, with great reliability.
Technical Analysis Tools
Tools such as Fibonacci or Gant retracements are very useful in identifying important levels after a price movement and consolidation. Elliot Waves are a consequence of this type of tools and retracements and are widely used in this type of asset.
As we have mentioned, the foreign exchange market is largely governed by the short term due to its high liquidity, which is why the formation and combination of Japanese Candles is very important for this type of asset.
Trading Indicators .
We should also be clear about and identify the most important trading indicators and what more information they can give us about the probable evolution of these assets.
Fundamental Analysis is also important for the foreign exchange market , although it is especially so for the macroeconomic part and the evolution of the main references worldwide, both for scalpers and for value investors (long term) but it is still a minor burden. than the one with Technical Analysis.
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