Now that you know most of the fundamentals and basic aspects of forex, in this section we'll introduce you to some charting patterns and a method of analysis within a field called technical analysis. Technical analysis is a method for evaluating currency movements by analyzing the data generated by market activity; such as price. Technical analysts will attempt to analyze this data in order to identify patterns that can help them predict future (short-term or long-term) price movements in the currency. 

There are several different techniques technical traders use to analyze data. In this section of the tutorial, we'll introduce you to moving averagestrendsresistance and supportsdouble tops and double bottomsBollinger Bands® and the popular MACD.

But before we dive into the niche details, let's look at a few key reasons why many traders believe technical analysis can be a good way to analyze currency movements.

Technical analysis is based on the assumption that the market discounts everything. 

This means the price of the currency reflects all available information, including fundamental factors (i.e. economic news) and thus doing fundamental analysis, some argue, would add no incremental value. Instead, technical analysts believe the analysis of price movement or the supply and demand of currencies is the best way to identify trends in the currency. 

Technical analysis is based on the notion that price movements tend to trade within a trend or range. 

This means past price behavior is likely to be repeated, and if a trend has been established the currency will most likely continue in that same direction. On the other hand, if a currency falls within a confined trading range, then trading signals will be generated near previous inflection points. (For more information on this topic, check out: Forex Should You Be Trading Trend or Range?)

In connection with the belief that prices move in trends, technical analysis assumes that history tends to repeat itself.

As inferred in the case of range-bound currencies mentioned above, the assumed repetitive nature of price movements is attributed to the psychology of the market participants. Generally, this is based on the idea that market participants have, historically speaking, often reacted in a similar fashion to reoccurring market events. Many well-known chart patterns and indicators are based on the assumption that history tends to repeat itself.

While there are many benefits of limiting the amount of input required for making a trading decision to only the technicals, there are many traders who believe that without fundamental analysis - looking at macroeconomic factors that affect the economy and thus the currency - that only half the story is being considered. There has always been the debate between which is the better method, but it would likely be best for you as a trader to be well-versed in both methods of analysis. Both have their strengths and weaknesses. (For a primer on fundamental analysis' role in forex trading, refer to our article Fundamental Analysis for Traders.)

Technical Analysis is Not Just for Currencies 

Technical analysis can be used on any financial asset with historical trading data. This includes stocksfutures and commodities, fixed-income securities, etc. In this tutorial, we'll use technical analysis examples to analyze currencies, but keep in mind that these concepts can be applied to a variety of securities.

Now that you understand the philosophy behind technical analysis, we'll get into the more common tools of technical analysis and build towards more advanced analysis techniques in the next few sections.

Moving Averages in Forex

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