- June 2015
- Posted By Ninoslav
- 0 Comments
In the world of forex trading, there are different methodologies that people utilize in order to successfully complete forex trades. One of the most used methodologies is known as forex analysis.
Behind forex analysis
Forex analysis or forex technical analysis is a methodology that involves ‘predicting the movements of prices and future market trends through studying charts that detail market action from the past. Due to this, forex analysis mainly addresses ‘what already happened’ in the market, rather than what ‘will happen’ in the market.
The way forex analysis accomplishes compiling data based on those principles is using the price of financial instruments in correlation with the trading threshold (volume) in the market. The data derived from that is often used to create charts.
Thanks to forex analysis, many traders are able to track many markets and their corresponding instruments all at the same time.
The principles of forex analysis
Forex analysis is known to have been built using three ‘key’ forex-related principles. The first principle addresses market action, as market action can indicate whether certain factors have affected its correlating market movements.
The second principle is the fact that prices in the forex market often move in trends. Using forex analysis can actually help identify known patterns of market behavior that have already been pegs as pretty important. Much of these patterns indicate that they are more likely to produce better results.
The third principle merely reveals that all trends or patterns end up repeating over time. Most forex chart patterns, in fact, have been categorized and used over the years to the point of them being well known by many traders.
Tool of the forex analysis trade
Most expert forex traders don’t only use their market prowess, paper, a pen or a Word document to analyze, calculate and track their progress. While forex analysis counts as a principle of forex trading itself, traders need the necessary tools to successfully pull off their trades.
In most cases, forex analysis calls for the use of tools like indicators (relative strength index or RSI, oscillators), number theory (Gann numbers, waves (Elliot wave theory), gaps (high-low, open-closed) and trends (following the moving average).
An example of a specific forex analysis includes the Coppock Curve, a tool that’s used in forex analysis for predict bear market lows. A Directional Movement Indicator (DMI) also helps successfully track the activity on any particular instrument’s market by checking if specific currency pairs are actually actively trading—or not.