Fundamentals of technical analysis in the Forex market
Technical analysis is a method of predicting price movements by comparing them on different time frames and studying the nature of the market movement. The application of technical analysis is an indispensable activity for most traders.
Technical analysis is based on three main elements:
It is taken into account by everyone. The price is always influenced by external factors, but technical analysis means that checking the political, economic and psychological factors affecting price movement is not mandatory, since price movement is the main indicator. All minor impacts are accounted for and reflected in the price action, so that will be the reason to consider this.
- Price movement in a certain direction In order to apply technical analysis, it is necessary to understand the meaning of the trend. The main objective of technical analysis is to determine price direction in order to be able to trade in the direction of the trend. There are three.
Types of trends:
- Bullish when the price is rising
- The price may drop significantly
- Sideways – there is no specific direction in which the price moves. Usually, you can get all kinds of trends from price movements, but one of them will be the dominant trend.
It should be noted that a change in direction of the trend only occurs when certain signals appear.
History repeats itself
This principle implies that the rules and types of analysis do not change, and price movements with preconditions are repeated on different time frames.
Market dynamics are first studied during technical analysis using charts.
The main tools are as follows:
Draw columns (periods)
- Wave Analysis Technical analysis can be a fundamental forecasting tool in the Forex market.
This analysis is successfully used by professional traders and Forex analysts. Their extensive experience in Forex helps them use technical analysis in trading.
Technical analysis can be the basic forecasting tool in the Forex market. This analysis is successfully used by professional traders and Forex analysts. Their extensive experience in Forex helps them use technical analysis in trading.
What is wave analysis?
Wave analysis in Forex is one of the methods of technical analysis. This type of analysis is named after the wave theory introduced by professional accountant Ralph Nelson Elliott in his 1938 book The Wave Principle.
Wave analysis is one of the most popular forecasting methods in the Forex market today. By applying the wave principle to the market, a trader can make accurate predictions about price behavior over a specific period of time.
This type of market analysis can guarantee success in trading and can be a really effective tool for a professional trader.
How do I use wave analysis?
According to Elliott Wave theory, the price movement of any currency pair can be represented on the chart in the form of waves.
The waves are divided into three impulse waves that propagate with a trend and two corrective waves that move in the opposite direction.
These waves are called the numbers 1,2,3,4,5. When the trend formation becomes less active, the price correction begins, represented by three waves on the chart.
Two of these waves are impulsive and the third is corrective. These methods are referred to as A, B, and C.
The main idea of wave analysis is that the price movement is regular The pattern iterates and repeats over and over again When traders apply wave analysis to Forex trading, they can predict price action at a specific point in a trend. When traders enter the market on the right wave and close a trade at the right time, they can make a profit. To minimize losses in Forex and set the stop-loss level correctly, traders should pay attention to the wavelength. As a general rule, the longer the impulse waves, the longer the corrective waves.
The most difficult part of using wave analysis is correctly identifying the wave type. In order to give an accurate forecast regarding the price movement, it is necessary to distinguish between impulsive and corrective waves. Corrective waves are usually the most difficult to identify. The Elliott Wave Theory applies to all traded assets
– From stocks and bonds to EUR/USD.