Technical analysis is the science or skill of forecasting of the future movements of the price using the past movements and data. However, if you learn the technical analysis properly, you can make more correct predictions, and so you will be profitable at the end. So here I just try to talk about the technical analysis in general, but I will write more detailed articles later. If you read my daily forex market analysis reports, you will see that technical analysis is the main thing that I use in the market analysis.
But I like to talk about them, because I know that some of you will become interested in using them. Line, candlestick and Bar charts are very common and I think candlestick chart is the most common chart and it becomes more popular every day. Finding the trends, support and resistance lines and levels and also consolidations like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … can be done through the technical analysis rules.
When you can achieve to find these things on your charts, you will be able to predict the next price direction and movement, and so you can take the proper position.
Technical analysis becomes even more helpful and valuable when you enrich the result with some other tools like candlesticks and Fibonacci levels. It will not make any differences because you will find the same trends and formations. Learn to read the candlesticks signals. Also read my Fibonacci article to learn how to use Fibonacci levels on the charts: Trendlines are the general direction of the price. Additionally each time-frame can have its own trends which can be different from other time-frames.
For example, while you have an uptrend in the daily chart, you can have a downtrend in the one-hour chart. It is important to know that when a support line becomes broken, it will act as a resistance. Look how a broken support was retested as a resistance in the Eur-USD one hour chart:. Like the support line, the resistance line can become broken and then act as a support.
And, see how this resistance line became broken and then was retested as a support line:. Everything that we do in technical analysis is based on the support and resistance lines we find on the charts. Even patterns like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … are created by the support and resistance lines. But professional drivers have to know about the engine, gearbox and all other parts of the car.
Professional traders know a lot about the psychology of the markets. Traders buy and buy and buy and the price goes higher and higher and higher but can the traders keep on buying for good? They cannot afford to buy more than a special limit and when most of the buyers reach their limit, they stop buying and start selling gradually. Then the other buyers who had kept their positions, becomes realized that the price will not go higher and will go down.
On the other hand, when you want to buy, a seller should be found at the other side of the market. And it is clear that you cannot find a seller at any condition and time and visa versa. This cycle will be repeated over and over but each time when the buyers reach their limit level, they stop buying.
When you connect the buying limits tops to each other, you will have a resistance line:. They are the lines that all the buyer finish selling and then start buying, and so the price goes up again. When you connect the selling limits bottoms to each other, you will have a support line. A positive or negative change in the economic condition is the most important factor. This tells the traders and investors that the economic situation of USA will be encountered with some problems because of the heavy expenses of the war.
Also some of the investors who had invested in USA, take their money out because they are fearful that the US economy will go down and so they cannot make any profit or they will lose. In trading based on the technical analysis, we just need to find the support and resistance lines and know when it is the time to buy or sell. When you find a support or resistance lines through the technical analysis, you should wait for the price to test them. If the price cannot break below the support and it goes up, you can take a long position.
Also when the price tests a resistance line and cannot break above it, you can take a short position. All these events have physiological reasons related to buyer Bulls and sellers Bears. When the price goes up again, the consolidation will be known as a continuation signal. If so, we have to plot the support and resistance levels and wait for the breakouts.
It means the price will keep on moving to the same direction that it has been moving before the formation of the flag. For example, Head and Shoulders and Double Tops that form at the top of an uptrend are reversal signals and the price should go down after these patterns.
But sometimes they fail to act as a reversal pattern, and so the price keeps on moving towards the same direction. Soon you will be much better than me. Hi Chris, My first time on this page, I thought that I knew enough to bypass this page, but there is always something to learn in your articles.
Does this mean that in order to have a better understanding of the market we are better to follow up the news reports? How to Use Technical Analysis in Forex and Stock Trading Technical analysis is the science or skill of forecasting of the future movements of the price using the past movements and data.
Obviously the past movements cannot guarantee the future movements. Therefore, technical analysis is not a hundred percent accurate and surefire forecasting method. So if you learn technical analysis, you can use it both in stock and forex trading. It is impossible to cover everything about the technical analysis in one article. They show the signals far after a breakout and a big move happens.
So it can be too late to enter to any trade. Before you read the rest of this article This eBook shows you the shortest way towards wealth and financial freedom: Article by LuckScout Team. August 31, at 7: October 13, at 5: October 13, at 6: July 29, at 1: July 29, at 4: September 24, at 6: December 3, at 2:More...