The Basics Of Technical Analysis

Technical analysis in trading

AN INTRODUCTION TO TECHNICAL ANALYSIS

Technical analysis is becoming an increasingly popular approach to trading, thanks in part to the advancement in charting packages and trading platforms. However, for a novice trader, understanding technical analysis – and how it can help predict trends in the market - can be daunting and challenging.

Technical analysis is the study of price movements in a market, whereby traders make use of historic chart patterns and indicators to predict future trends in the market. It is a visual representation of the past and present performance of a market and allows the trader to use this information in the form of price action, indicators, and patterns to guide and inform future trends before entering a trade.

This technical analysis beginners guide will introduce you to the basics of this trading approach, and how it can be used to trade the financial markets.

UNDERSTANDING TECHNICAL ANALYSIS

Technical analysis involves the interpretation of patterns from charts. Trader’s make use of historic data, based primarily on price and volume and use this information to identify trading opportunities based on common patterns in the market. Different indicators are applied to charts to determine entry and exit points for traders to maximize trade potential at good risk-reward ratios.

The below chart is an example of a chart with the use of the MACD and RSI indicator.

EUR/USD chart with indicators

While advocates of fundamental analysis believe that economic factors are the main contributors to movements in the markets, technical analysis traders maintain that past trends can assist in predicting future price movements. Although these trading styles can vary, understanding the differences between fundamental and technical analysis – and how to combine them - can be extremely beneficial.

HOW TECHNICAL ANALYSIS CAN HELP TRADERS

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