Trading Academy

Lesson 20

What is Technical Analysis

Technical analysis is a framework that traders use to study and exploit the price movement of a market. It implies specific tasks such as analyzing market structure, finding trends, drawing support and resistance levels and generally learning to read the ebbs and flows of a market.

The principles of technical analysis are based on the Dow Theory with the following main points:

  1. Price is a reflection of all the market forces.
  2. Price movements are historically repetitive.
  3. Price movements are trend followers. Trends exist until their reversals are confirmed.

Technical analysts maintain the idea that all economic variables are represented by and factored into the price movement on a price chart. If that argument holds true, it only goes to reason that we don’t really need much else to analyze and trade the markets besides price.

One of the most basic principles of trading Forex using technical analysis is to locate a trade near support (a level where price stops falling) or resistance (a level where price stops rising).

Price charts are a mirror of all market participants’ expressed views about the market, so by focusing the analysis and trading the price chart we can basically glean the end result of everything that contributes to the price movement of a market, and synchronize out trading with it.

Keep in mind:

  • Technical analysis reveals patterns that can be traded with a high probability of success;
  • Many novice traders mistake by using too many indicators;
  • Trading in the direction of the predominant trend puts the probabilities in your favor.

  • Your progress 40% 40%

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