Technical analysis is the art of using history to predict the future.At all forex parties, all the currency pairs have been making history with their “dancing” moves. A technical analyst looks how a currency has been performing, and determines potential future price movements.
Here is the difference between fundamental and technical analysis via an example perfect for all the shopping lovers:
Let’s say you are trying to find the perfect shop to buy everything you need for your best friend’s bachelorette party. As a fundamental analyst, you ask all your friends about the products of different shops that you have in mind. You would go to each store and study the product that was being sold. After you have gained all the information, you will decide which store to shop at.
On the other hand, as a technical analyst, you would save all the phone calls and walking from store to store on your high-heels shoes, and instead, you would sit on a bench close to each store and watch people going in and out. You will analyze their shopping bags, their facial expressions before and after shopping, etc. Your final decision will be based on the patterns or activity of people going into each store.
Your grandma had a point when she told you “history repeats itself.” She would’ve made such a good technical analyst, because this is basically what technical analysis is all about!
There are so many fabulous tools and gadgets that help understanding the historical movements and patterns. By learning how each indicator works, you can have a higher accuracy in predicting future price actions.
Technical analysis look for similar patterns that have formed in the past, and will come up with trading ideas believing prices will make the same movements as they did before.
Let’s take a look at a currency pair’s historical dancing movement printed on a chart.
Charts are the best way to see all the moves a pair has made in a glance. You can literary see the prices jump up and down in whatever time-frame that you like.
I almost forgot to mention that currency pairs can sometime be very trendy as well. Often times, they follow the latest trend of price, which help analysts to come up with trend trading strategies.
You will learn about all these cool things in detail in the Technical Beans.
