Technical Analysis Explained: Tools and Techniques for Market Analysis
Technical analysis (TA) is a primary analytical method in foreign exchange trading. It uses charts and indicators as its main forecasting tools. According to technical analysis theory, future price movements can be predicted by analyzing historical price data.
Technical analysts often disregard fundamental analysis (FA) because they believe that all available information is already reflected in current market prices. This concept is rooted in the Efficient Market Hypothesis (EMH), which posits that new information is quickly absorbed by the market, making it unlikely to consistently find trading opportunities based on fundamental data alone. Technical analysis, instead, focuses on price patterns and market behavior to forecast future price movements. However, some traders combine both TA and FA for a more comprehensive strategy.
TA is highly subjective. The same chart can be read as bullish by one trader and bearish by another. This is due mainly to the different methods of technical analysis, which include countless techniques, such as price patterns, indicators, supports, and resistances.
