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Beginners Guide to Technical Analysis in Forex Trading

Technical analysis refers to a tool, or method which helps in predicting the future price movement of a certain security like a stock or currency pair on the basis of market data.

The theory which backs the validity of technical analysis has to do with the idea that collective actions of purchasing and selling of all the participants in the market perfectly reflect the necessary details with respect to a traded security, and hence, constantly put a fair market value to the security. Visit MultiBank Group

Past Price as an Indicator of Future Performance:

Technical traders are of the opinion that present or past price action in the market turns out to be the most trustworthy indicator of future price action.

Technical analysis is not used just by technical traders. In fact, there are several fundamental traders who use fundamental analysis to determine if it’s a good time to purchase. Once they take a call, they put technical analysis to work to be able to identify the low-risk buy entry price levels.

Charting on Different Time Frames:

Technical traders assess price charts to try and predict price movement. The two key variables for technical analysis are the time frames taken into account as well as the particular technical indicators which a trader selects to use. 

The technical analysis time frames as depicted on charts range from a minute to monthly, or even annual time periods. Some common time frames assessed by technical analysts usually are: 

  • 5-minute chart
  • 15-minute chart
  • Hourly chart
  • 4-hour chart
  • Daily chart

Price movement which happens within a 15-minute time span could turn out to be significant for an intra-day trader searching for an opportunity to take profit for price fluctuations that happen in a trading day. Yet, that same price movement which is seen on a daily or weekly chart could not be as significant or indicative to be useful in the long run. 

Uptrend and Downtrend:

A trend in technical analysis could be identified as the direction of the market which could have three types: uptrend, downtrend and sideways trend.

In case the direction of the prices is upward, then that particular trend is called an uptrend. However when the prices are moving down then it is in a downtrend.

If the prices are moving or fluctuating between two levels, it is said that the stock prices are in a sideways trend.

An uptrend in the charts can be identified with higher highs and higher lows of the prices.

A downtrend can be recognized by the lower highs as well as the lower lows of the prices. 

It is necessary to recognize stock market trends as they tell us about the direction of price movements. 

Support and Resistance Levels:

Identifying support and resistance levels is important as they tell us if the prices could reverse or continue. Know more مجموعة ملتي بانك

Support refers to an area where the stock demand exceeds supply and hence, when the rates reach this level, they could reverse to the upside.

Resistance indicates an area where stock supplies exceed demand so when the rates reach this level, they may reverse to the downside.

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