Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is Technical Analysis? Technical Analysis

Forex Educational Video Series

Author: Andreas Thalassinos (BSc, MSc, MSTA, CFTe, MFTA), Head of Education at FXTM.

What is Technical Analysis?

When I explained what a Trading Strategy is based on in the Trading Basics series, I emphasised the three principles of Technical Analysis – do you remember them? They are:

  1. Market action (price) discounts everything
  2. Prices move in trends
  3. History repeats itself

It’s important to keep those principles in mind throughout the entire series of Technical Analysis basics.

We already know that Technical Analysis is the study of market action, primarily through price charts, in order to identify the next trend as early as possible. Identifying trends as early as possible gives the trader the opportunity to “ride the trend” and take advantage of a potential rally. Traders have a lot of tools to help them in this quest for the trend; these include Support & Resistance, trendlines, Price Patterns, Japanese Candlestick patterns and indicators etc.

For example, employing popular price patterns such as the Head and Shoulders can assist in identifying trends at their earliest stages. Trendlines guide traders to navigate the financial markets like the compass guides the sailor to navigate the open seas. If the price honors the trendline, the prevailing trend should remain intact. If the trendline is “violated”, this is seen as a warning that the prevailing trend may be coming to an end.

Indicators and oscillators are also very popular tools for technical traders, and the MACD is among the most used. When the MACD crosses above the zero line, it signals an uptrend. When it falls below the zero line it signals the beginning of a downward movement.

Traders are advised to combine a variety of tools, rather than taking the much riskier option of relying on a single one. There are many more tools that technical traders use, which you will see throughout the course of the Technical Analysis video series.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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