Fundamentals of Technical Analysis

Trading forex online is possible through the use of two separate kinds of tools. One of them is termed fundamental analysis, while the other type is called technical analysis. Our subject in this article will be the latter.

Technical analysis focuses on the market action, and tries to define patterns that can then allow future prices to be predicted. The technical analyst uses a large number of tools for his purposes which are termed indicators.

Common indicators include the RSI (relative strength index), the MACD, the Fibonacci Indicators, and the various classes of moving averages. Technical analysis is not concerned with the causes of price action. What drives the prices up or down is thought to be already reflected in the consensus of traders that drives the markets, and discovering it is thought to add no new information to what is available to the bulk of traders active in the market.

Successful use of technical analysis is only possible if we understand what probability is. A probability value established or hinted at by technical analysis only means that if the existing price pattern were to be repeated many times in the future, the ratio of one outcome to the other would be tending to the probability value.

As such, any trader who thinks that it is a great idea to risk a large portion of his account when the analytical odds are showing an 80 percent success chance is likely to be severely disappointed at the end of his endeavors. As such, successful results in technical analysis always depend on the disciplined application of money management methods. Successful analysis requires that you make no assumptions about what the market must do.

Technical analysis is a popular and common method in forex analysis, as the vast majority of traders and analysts make use of some kind of technical tool in identifying entry/exit points at the very least. But the reliability of the technical approach is not any greater than any other method that depends on probability and conjectures.

None of the basic tenets of technical analysis has been proven, and none of its methods receives universal acceptance in the trader community. But it is still a highly popular method, and if only because traders expect its dictates to be followed by the markets, it remains a valid approach to the age-old problem of understanding and evaluating the price action.

If you are interested in learning technical analysis from the ground up, and want to trade like a professional take a look at this technical analysis course, I consider it to be one of the best available, produced by a full time professional trader

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