Forex Technical Analysis

The big debate rages as to whether using technical analysis can be used to predict future price action. A lot of fundamentalists claim that technical analysis is of no benefit in predicting the future.

Are they right or wrong?

If we consider the evidence we can gain an appreciation that sometimes the fundamentalists are correct. "Sometimes".

The movement of currency prices, stock prices or commodities are not governed by any law. Prices move either up or down or remain the same based on the following principles;

Larger volume of instrument being bought = higher prices.
Larger volume of instrument being sold = lower prices.
Same volume of buyers and sellers = prices remain the same.

[Principles of supply and demand]

WD Gann in his writings mentioned that prices moving either up or down was due to 'human psychology'. He said that there was nothing new on Wall Street that had not already happen in the past because 'human nature' always remained the same. People living right now have the same characteristics as they had in the past ... like fear and greed. He believed, this was what really drove the market and the evidence of this could be seen or read from the price chart.

Hence, this is the argument that technical analysis does indeed work.

Real evidence that technical analysis works is in the performance of automated trading systems, known as expert advisors or trading robots. Most ea robots are built around technical analysis indicators. Brainyforex sets up and tests ea robots and displays live trading results for the public's inspection here.

We will now consider how to read the price chart using some of the more popular forex technical analysis methods;

Trend Lines

Support and Resistance

Bollinger Bands

Harmonic Chart Patterns

Double Top & Double Bottom Chart Patterns

Market Cycles

Trading Breakouts

Reading & Understanding Raw Price Data

Jen's Clever teaches price action for a song

Hidden Stochastic. A different perspective by a professional trader, Vladimir Ribakov. How he trades with the stochastic indicator. Free 16 page report. Click here to read the PDF in your browser, or right-click to download it.

MACD
How to reduce false signals using MACD here.

Fibonacci

Practical Application
Lets put some of WD Gann's technical analysis to the test and apply it to the EUR/USD currency pair. Check it out here.

Further reading on technical analysis is available at the articles section here.

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