Success in Forex trading takes more than just a trip to a fortuneteller. A similar concept of foreseeing the future, however, might do the trick. Quite a number of forecasting methods are already established, and for this article, great focus is given on an introduction to the Technical Analysis method for forecasting Forex trading patterns.
Technical Analysis is a method that can be used to forecast market price changes and fluctuations. Like fortunetellers, technical analysis uses certain tools to predict patterns in market prices. However, unlike fortunetelling, which uses tarot cards and crystal balls to help predict the future, technical analysis uses charts, tables, and often, statistical mathematics, to predict the future of Forex trading.
Underlying Principle of Technical Analysis
Technical Analysis simply relies on past and present numbers and figures. It takes into complete account the numerical pattern of the market for as far back as possible. And since it only considers numbers as the primary source for market price forecasting, other probable causes for market price changes, such as inflation, socio-political factors, and the like, are simply disregarded
Advantages of Technical Analysis
Technical Analysis is a purely objective tool, thus making it a pretty stable means of forecasting market trends. Often, this objectivity makes it an extremely accurate tool for success in the Forex trade. It is good to take note, however, that technical analysis forecasts tend to be more accurate for the most immediate future. This means that if you want to take advantage of some forecasted price changes, you should act on it right away.
Disadvantages of Technical Analysis
Technical Analysis has quite a number of disadvantages, some of which many forex traders consider as insignificant, but are nonetheless true. These disadvantages are mainly rooted in the fact that technical analysis focuses only on numbers, specifically prices, to predict future market patterns. However, many factors other than previous market trends affect future market prices. In fact, anything that can affect the prices of other trades and commodities can also affect forex trade. These factors include, but are not limited to: inflation, economic and political stabilities of key countries, interest rates, trade psychology, and supply-demand situations. Technical analysis disregards these factors completely, which could render it inaccurate in situations wherein these factors could have a great impact on forex trading.
Technical Analysis method of forecasting market prices has its own advantages and disadvantages. However, it is up to you to weigh these advantages and disadvantages, and see if technical analysis is a tool you can use to help you in the forex trade.
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