Any new Singapore Forex trader may have an access to unlimited information about Forex trading, Forex strategies, etc. In this article we are going to present a technical analysis as one of the most popular ways to analyze the Forex market for a successful trading.
Technical analysis is widely used to predict the movement of different markets and not only Forex (changes in stock prices, futures, currencies, the volume of transactions and other financial instruments). It is basing on the data received over the previous period of market’s behavior. Today, the technical analysis is one of the most accurate and powerful tools for predicting the price movements of different markets including Forex.
General principles of the technical analysis:
Price includes everything. All the factors that may affect the currency price, like economic, political or psychological ones, are already included into the price of the market. Therefore the study of charts or making a technical analysis of the historical and current prices is all that is needed in order to accurately predict the future movements.
Price movements have a purpose. This statement is the basis of a trend analysis and is the core of technical analysis.
There are three types of directions of movement (a trend) in technical analysis:
– “Bull” is the upward direction of price movement (the analogy with the bull, which raises the enemy by his horns);
– “Bear” is the downward direction of price movement (on the analogy with the bear, beating his opponent with his paw down);
– “Flat” is the price movement without a definite direction in a certain price range.
History repeats itself. Technical analysis assumes that the laws of economics, physics and psychology stay the same in different historical periods. Consequently, the rules that were in force in the past will work the same way today and in the future. This rule allows making the Forex market’s analysis of the past and present and use this data to predict the future.
Main rules of the technical analysis basing on the theory of Dow Jones.
1. The market’s price is a reflection of all forces and factors influencing the market. At any moment, all powers of the markets and information are displayed in the current price.
2. Price movements are repeated periodically.
3. Price moves by trends.
4. There are two main types of trends in the Forex market: primary, secondary and small. Each trend is divided into few parts. A primary trend has three stages: accumulation, rise/fall and distribution. During the accumulation phase, the most experienced traders usually open new trading positions. In the rise/fall stage the majority of the market participants begin to see the emerging price movement and hurry up to use it. Finally, during the period of distribution the experienced traders take their profits by closing their positions, the trading activity in the market decreases and the trend disappears. Secondary trend is the correction of the primary one and may reduce the profit gained during the primary trend.
5. Trend is always supported by a trading volume.
6. Trend exists until there is a breakthrough.
To sum it up, we can conclude that the price rates reflect the circumstances in the market usually repeat periodically at about the same time.