Technical Analysis
What is so great about technical
analysis?
Once a trader masters
technical analysis, it is easy to apply it to any currency or time frame, and
thus allowing a relatively short time to figure out where trends are going.
Because of the short time, technicians can follow numerous currencies at the
same time, whereas fundamentalists usually focus on one or two pairs of
currencies, because there is so much information in the market to analyze.
Traders using fundamental analysis can
run into trouble because there are so many different ways to analyze market
information. This causes controversy and can lead to misdirection,
misunderstanding and ultimately, loss of money. On the other hand, technical
analysis can be much more straightforward. Many traders even consider it to be
a self-fulfilling prophecy, meaning that it works well because so many traders
use it. This is an important aspect of technical analysis because if many
traders are basing their decisions on technical indicators, then the indicators
must be watched since they reflect the sentiment of the market and the majority
of the traders.
Why is the foreign exchange market
the best market to use technical analysis?
The foundation behind using technical
analysis is to find trends when they first develop, which allows the trader to
ride the trend until it ends. The foreign exchange market is typically composed
of trends and is, therefore, a place where technical analysis can be effective.
Traders are able to speculate on both up and down trends in the foreign
exchange market because it is possible to Ask a currency and Bid against
another currency. This aspect of currency trading works well with technical
analysis, because technical analysis helps determine where the trends are and
which way they are going, thus giving the trader a chance of profiting from the
market, regardless of its direction.
In comparison to the equities and futures
markets, technical analysis is much more common and popular within the foreign
exchange markets, which causes the traders to pay attention. The market partly
moves because of all the technical analysis performed. For example, according
to technical analysis, if a currency pair decrease, then the majority of
traders will Bid the pair, causing it to drop further.