One of the fundamental beliefs of technical analysis mentions that historical price action is what helps predicts future price action. Because the forex is a 24 hour market, large amounts of data sometimes accumulate and can be used to measure the activity of future prices, which will in turn, increase the statistical importance of the forecast, thus making it the right market for traders and investors who utilize tools like charts, indicators, and trends.
An important thing to note is that, generally speaking, the interpretation of technical analysis will remain constant, regardless of the asset being monitored. Listed below are some techniques for technical analysis and indicators that are geared to forex.
Minimal Rate Inconsistency
The market contains numerous large players such as banks and large financial companies, who all have their own advanced computer systems to help them constantly monitor currency pairs and quickly inform them of any inconsistencies in these pairs. With these programs, it is rare for inconsistencies to last for more than a second. Majority of traders turn to forex because it deduces that any factors that will have an influence on a currency’s price such as economics, politics, and social, have all been factored into the market’s current exchange rate.
Range or Trend
One of the many goals of traders in the forex market is to be able to determine if a chosen currency pair will trend in a certain direction or do the opposite and travel sideways and remain range-bound. A common technique to determine this is through drawing trend lines that correlate to historical levels that have shown to prevent a rate from going up or down. This kind of support and resistance is used by technical traders to help them conclude if the presented trend, or a lack of trend, will persist or not.
There are many indicators used by technical traders that involve a combination of support and resistance that will aid them in their prediction of the future direction of exchange rates.