The application of technical analysis to foreign exchange markets is a recent hot development in trading due to the advent of new technologies.
Technical analysis is based on the assumption that all information is already included in the prices. After all, the price at any given time is the sum of the knowledge, fears, hopes and expectations of the people already in the market and those contemplating getting into it. How might those bystanders affect the price? Let’s say if they hold back from buying EUR/USD, they are keeping the price lower than it otherwise would be.
One feature of the market is its discounting mechanism, and it is one of the main reasons for using technical analysis. The market does not actually predict anything, but it reveals what the major market players like hedge funds or trading pros think.
When the forex market anticipates robust economic growth, players become willing to pay more for the country’s currency, and this drives the currency higher. Conversely, when market players expect a slowing economy, they become less willing to bid for the country’s currency if they think that there would be less demand for it as a result. Hence, market participants have already factored in today’s news into the prices, and begun to anticipate tomorrow’s breaking news. In addition, technical analysis works under the assumption that history tends to repeat itself.
Technical traders use charts, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, based on historical currency data. Technical analysis works well in the forex market because short-term exchange rate fluctuations are primarily determined by human emotions or market perceptions. Perception as reality is very true, and this concept manifests itself strongly in the markets. If you think that a currency is worth x amount against another currency, then it will be what it is worth.
Technical analysis is based on the assumption that all information is already included in the prices. After all, the price at any given time is the sum of the knowledge, fears, hopes and expectations of the people already in the market and those contemplating getting into it. How might those bystanders affect the price? Let’s say if they hold back from buying EUR/USD, they are keeping the price lower than it otherwise would be.
One feature of the market is its discounting mechanism, and it is one of the main reasons for using technical analysis. The market does not actually predict anything, but it reveals what the major market players like hedge funds or trading pros think.
When the forex market anticipates robust economic growth, players become willing to pay more for the country’s currency, and this drives the currency higher. Conversely, when market players expect a slowing economy, they become less willing to bid for the country’s currency if they think that there would be less demand for it as a result. Hence, market participants have already factored in today’s news into the prices, and begun to anticipate tomorrow’s breaking news. In addition, technical analysis works under the assumption that history tends to repeat itself.
Technical traders use charts, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, based on historical currency data. Technical analysis works well in the forex market because short-term exchange rate fluctuations are primarily determined by human emotions or market perceptions. Perception as reality is very true, and this concept manifests itself strongly in the markets. If you think that a currency is worth x amount against another currency, then it will be what it is worth.
