Importance Of Technical Analysis in Forex Market

Fundamental and Technical analysis are two basic methods through which we can analyze the securities. These methods help us in taking decision for trade in Online Forex Trading.

               

Fundamental analysis based on the macroeconomic factors. It also analyzes the financial position of the company while, technical analysis based on the historical price action of Forex. It also gives weight to the volume of sellers and buyers.

The foreign exchange market can be an unpredictable and hazardous territory. That's why you need technical analysis training. More risk is consisted here compared to other investments. This is due to currencies can dramatically increase or decrease in value in a short period of time, which means that you will need to keep a good eye on trends.

For technical analysis, we should go through a step-wise process. In the first step, we analyze the data of a particular pair lot. Generally, for intraday, we should have the data of last three to six months. Then, we observe the volatility of the Forex during this period.

After this step, we should go through the second step that is candlestick analysis. We have different candlestick patterns like spinning tops, dozi, marubozu, hammer, hanging man, piercing and many more. These patterns give us an idea about the future price of a lot. So, they help in the trading decision.

Now the third step is chart-pattern analysis. In this, we should find out the different chart-patterns like the double top, double bottom, head and shoulder, wedge, flag and many more. These patterns help us to determine the support and resistance of prices and trade.

The fourth step is the analysis of Technical indicators. A technical indicator is a result of a mathematical calculation based on price and volume. Indicators show the movement of future price. Moving averages, ADX, RSI, Bollinger Band, and Stochastic are some examples of the indicator in Forex market.

Now the last but not least is Beta. The stock price also determines by the movements in the index. The changes in index put comparatively more impact on the stocks having Beta greater than 1, than stocks having Beta less than 1. However, both (stocks having Beta more than 1 and stocks having Beta less than 1) are directly proportional to the index variations. It means a positive change in index creates a positive change in stock price and a negative change in index creates a negative change in stock price.

At last, we can say that for technical analysis, we should go through all the five steps in a sequence namely, data analysis, candlestick analysis, chart-pattern analysis, technical indicator analysis, and Beta analysis. By considering all these steps, we can determine support, resistance and stop loss for a particular stock.