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One of the underlying tenets of technical analysis is that historical price action predicts future price action. Since the forex is a 24-hour market, there tends to be a large amount of data that can be used to gauge future price activity, thereby increasing the statistical significance of the forecast. It is important to note that, in general, the interpretation of technical analysis remains the same regardless of the asset being monitored. There are literally hundreds of books dedicated to this field of study, but in this tutorial we will only touch on the basics of why technical analysis is such a popular tool in the forex market. As the specific techniques of technical analysis are discussed in other tutorials, we will focus on the more forex-specific aspects of technical analysis.
There are many large players in the forex market, such as hedge funds and large banks, that all have advanced computer systems to constantly monitor any inconsistencies between the different currency pairs. Given these programs, it is rare to see any major inconsistency last longer than a matter of seconds. One of the greatest goals of technical traders in the FX market is to determine whether a given pair will trend in a certain direction, or if it will travel sideways and remain range-bound. The most common method to determine these characteristics is to draw trend lines that connect historical levels that have prevented a rate from heading higher or lower. Technical traders use many different indicators in combination with support and resistance to aid them in predicting the future direction of exchange rates. Again, learning how to interpret various forex technical indicators is a study unto itself and goes beyond the scope of this forex tutorial.
If you wish to learn more about this subject, we suggest you read our technical analysis tutorial. These technical tools are rarely used by themselves to generate signals, but rather in conjunction with other indicators and chart patterns. Price action trading allows you to customize your own trading strategy. Are small cap companies more risky investments than large cap companies? Typically, small cap companies are not a safer investment than large cap companies. Which option is better on a mutual fund: a growth option or a dividend reinvestment option?
What is the difference between a buy-side analyst and a sell-side analyst? Forex technical analysis encompasses the use of some of a range of indicators, including momentum indicators. In this course, we will learn how moving averages can be adapted to serve as momentum indicators, as well as marking mobile support and resistance. The first type of moving average crossover is price crossing over or under a moving average. The second type of moving average crossover is a shorter-duration moving average crossing over a longer, slower moving averags. Using Forex technical analysis, we will learn under what conditions a moving average crossover signals a possible momentum and trend change.
Finally, we will talk about Momentum Indicators. They also give traders a better idea of future price movements. 1 Momentum Indicators Momentum Indicators measure the rate of change in closing prices and are used to detect trend weakness and likely reversal points. This lesson outlines the two types of moving average crossovers that can be used to indicate price momentum. 3 MA Crossovers and Simple Systems – Part 2 New traders look for a simple system that can give them a starting point of rules to follow when looking at Moving Averages Crossovers. In this lesson we will show you an example of a simple system for generating momentum signals, and explain how it works. Risk Disclaimer: FX Academy will not be held liable for any loss or damage resulting from reliance on the information contained within this website including market news, analysis, trading signals and Forex broker reviews.