Technical analysis plays an important role in helping you to predict the future price movements in the market. It is based on the premise that the historical price action of an asset can be used in order to predict the future price action of that asset. Since the Forex market has a large volume of transactions occurring over a period of 24 hours, using technical analysis is an ideal tool to use in order to understand the market movements.
In technical analysis, price action is depicted visually on a trading chart. Traders can use various tools in order to help them predict the future price movements of the asset. This includes identifying trends, support and resistance as well as many other mathematically derived indicators such as the RSI (Relative Strength Index) and the MACD (Moving Average Convergence Divergence) indicator. There are a wide variety of tools that one can use for technical analysis to assists your trading decisions in the Forex as well as other financial markets.
One of the key characteristics of the financial markets is that price trends often repeat themselves. Since there are a large number of traders in the Forex market including banks, insurance companies, hedge funds and private investors, there is very rarely a situation where inconsistencies can be exploited in the currency markets. Any disconnects or movements that go against the market trend are generally corrected within seconds or less.
Technical analysts, therefore, enjoy Forex trading since all the known information is already included in the Forex exchange rates. With so few discrepancies in the Forex market, technical analysts can focus on the trend of the market as well as the flow of capital.
Technical indicators are the tools that helps the traders analyze the market and to predict the future price movements of assets. Today, there are hundreds of indicators that one can use in order to determine the future direction of currency exchange rates.