Traders need a specific strategy to carry out their trades in the forex market and must be able to analyze the financial markets based on a specific method. One of these methods is done through technical analysis.
Forex technical analysis is the opposite of fundamental analysis. In simple terms, it means evaluating currencies and predicting future price trends using patterns, charts, and other technical specifications. Using this method, traders identify patterns and trends that can create a potential opportunity for buying and selling in the trading platform.
A trader who uses technical analysis should be familiar with tools and indicators such as moving averages, support and resistance levels, trend lines, and chart patterns.
By using these indicators, the trader can analyze the behavior of the market in the past and based on that, predict possible price changes in the future. In the following, we will introduce the types of forex technical analysis and examine the difference between technical and fundamental analysis.
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Technical Analysis Training
Traders must be familiar with a wide range of indicators and topics to learn forex technical analysis. For example, familiarity with chart techniques, technical indicators, trading strategies, and trend lines is only a part of technical analysis.
In technical analysis training, traders learn to analyze price charts based on line, candle, and bar charts. They also learn about various trading strategies such as long-term and short-term strategies.
Linear Graph:
The line chart is one of the most used tools in technical analysis. On a line chart, the closing price of a stock or a particular asset in a certain period is drawn on the chart. This period can be daily, weekly, or monthly.
By reading line charts, traders will have a better idea of the overall price movement and will recognize its upward, downward, and lateral direction more clearly.
Candlestick Chart or Candlestick Chart:
A candlestick chart, which also looks like a candlestick, displays more information about price changes.
In other words, each candle represents a specific period (day, week, or month). Candlesticks are displayed either in descending order (in red) or ascending order (in green).
By viewing each candle, the trader receives information such as the highest price, the closing price, the lowest price, and the opening price.
Bar Graph:
In the bar charts, the initial price, the highest price, and the closing price of an asset are displayed in a certain period (one day or one week). Bar charts are a very good tool for identifying trends and support and resistance points.
Many traders use bar charts; Because the price trend in this chart is more accurate than the linear charts.
Comparison of Technical Analysis and Fundamental Analysis
Traders use two methods of technical analysis and fundamental analysis to trade and invest in the forex financial market.
The use of each of these two types of analysis completely depends on your investment goal. Both approaches have their advantages and disadvantages and have different data sources and tools.
As it is said at the beginning, price and volume charts are used in technical analysis to forecast price trends. Traders who use technical analysis believe that the market trend repeats itself over time and if the price data of each stock is studied well, the best opportunities for buying and selling can be identified.
Unlike fundamental analysis, which is a qualitative analysis, technical analysis deals with quantity and uses mathematical models and statistical tools to investigate market behavior.
Fundamental analysis, as the name suggests, deals with deeper and qualitative analysis and examines financial health, economic conditions, and indicators such as profit reports, balance sheets, and the like to obtain a correct analysis of the market situation.
One of the most important differences between fundamental analysis and technical analysis is the type of data that traders rely on.
For example, in technical analysis, traders focus on historical price and volume data; But fundamental traders focus on the economic conditions and financial fundamentals of a company.
In addition, in fundamental analysis, the financial trends and performance of each company are examined with its competitors, and by observing each one, useful information about market trends and prices can be obtained.
Types of Technical Analysis
Technical analysis is done in different ways and each has its advantages. To be able to use this type of analysis properly, you must be familiar with its different types and the tools of each one. In the following, we will review the most common types of technical analysis together.
Indicative Analysis
Indicative analysis in simple language means that the trader uses indicators for technical analysis. Each of these indicators has a specific effect on price prediction or determining price reversal points, and for this reason, many traders use them as a practical tool.
Among the most important and common indicators of the financial market, we can mention the moving average, MACD, RDI, Ichimoku, and Bollinger bands.
The advantage of using indicator analysis is that it can be used in all financial markets and can be applied in all trading time frames. Also, using this analysis will be very ideal for scalp trades and long-term trades.
Classic Price Action
In classic price action analysis, the trader focuses on analyzing market price patterns over time and decides to trade by identifying them.
People who use this type of analysis believe that all the data related to a particular share or asset is reflected in the market price, and by studying and analyzing these price patterns, it is possible to predict very good trading opportunities in the future.
The most common patterns used in price action analysis include geometric, Fibonacci, candlestick, fork, and divergence patterns. Knowing each of these patterns can provide important information about any stock or asset and has a significant success rate.
Modern Price Action
Modern price action technical analysis is a more professional form of classic price action that, unlike traditional technical analysis methods and the use of indicators, uses real price movement.
Traders using modern price action analysis know that they will get the information they need from price action and perform price analysis using common techniques such as identifying support and resistance levels, trend lines, and chart patterns. In this type of analysis, there is a higher percentage of success and it is also suitable for long-term trading.
Harmonic Trading
Harmonic trading is an advanced form of technical analysis that uses ratios and Fibonacci patterns to identify potential reversal levels in financial markets. People who use this type of technique believe that price trends in financial markets are not random and follow certain patterns.
Patterns that repeat themselves over time. Several patterns are used in harmonic trading, such as butterfly, crab, or Fibonacci patterns. Using harmonic trading techniques, traders can potentially predict future price movements with high accuracy and determine the correct time to enter and exit each trade.
Supply and Demand
Supply and demand analysis is one of the most common types of technical analysis and focuses on the relationship between supply and demand for a particular asset or stock. In this type of analysis, the trader examines market price patterns and trends to understand how supply and demand affect each particular asset.
Support and resistance levels, trend lines, and volume indicators are usually used to analyze supply and demand. Using these tools, the trader identifies the areas where supply and demand reach equilibrium and predicts the point of change in price direction.
Time Analysis
Time analysis is the study and analysis of the price trend in the financial market in a specific period. Unlike other technical analysis that focuses on price, this type of analysis focuses on time.
Prices in the financial market are presented with different time series, which can be used to obtain useful information by accurately identifying them. This type of analysis is usually used in conjunction with other technical analysis tools, such as charting and trend analysis, to help traders make informed decisions about buying and selling securities.
Technical Analysis Software
In the forex financial market, various applications are provided, using which you can get to know the markets better and perform your analysis with higher accuracy. In the following, we discuss the most widely used and popular technical analysis applications.
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Metatrader
Metatrader is one of the most useful trading applications that many forex brokers offer to their users. This application displays various charts by default and the user can customize it according to his needs.
This application can apply the average and you can use it to have a more accurate analysis of the market. You can also draw different shapes such as columns, geometric forms, or lines on the charts you want, and in this way, you can see different market patterns better.
The possibility of automatic trading and order registration is also considered in this software.
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Dynamic Trader
This software is considered a powerful tool for technical analysis and can provide you with a comprehensive and accurate analysis by aligning time, price, and Elliott analysis.
Using the Dynamic Trader software, you can put two graphs next to each other and perform relative analysis.
In addition, Dynamic Trader software is equipped with tools such as time Fibonacci, price Fibonacci, and price counting tools and calculating the percentage of price and time changes, which seems ideal for all kinds of technical analysis. This software also has a practice mode designed for experimental and new users.
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Advanced Get
Advanced Get is used to count Elliott waves professionally and automatically. Using this software, traders will have access to a wide range of technical indicators and charting tools, and as a result, they can get the best analysis from market data and identify good trading opportunities.
Also, traders can use this software to automatically activate their trading strategies with predetermined rules and conditions.
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Amibroker
Amibroker is designed with high graphics and provides the user with the possibility of displaying various charts with different colors and arrangements. Using this software, the user can implement his trading system in a personalized way.
Profit and loss tracking and portfolio management are other benefits of this software. In addition, by installing a special plugin on this software, you can also view harmonic patterns.
Trendline in Technical Analysis
The trendline is one of the most important and basic tools in technical analysis. Because in any chart and any type of pattern, the trendline provides a visual representation of the price movement.
By observing the trend line, you can get a lot of information about the current price trend and its possible changes in the future. Also, trendlines are used to identify the level of resistance and support, and based on them, the downward or upward process of a stock price can be predicted.
Trends are divided into three types: ascending, descending, and neutral.
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Uptrend:
When the low or high price in a chart is higher than the previous low and high price and has crossed the previous price ceiling, then the price trend is considered an upward trend.
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Downtrend:
In a downtrend, when the high or low price of a share or asset is lower than the previous highs and lows, it is considered a downtrend.
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Neutral trend:
In a neutral trend, the price trend is neither upward nor downward. As a result, the next movement of the asset cannot be predicted.
