Part 10: What is Technical Analysis?

What is Technical Analysis?

• Technical Analysis

Technical analysis is the study of the price movement on a chart of a particular Forex currency
pair or other market. We can think of technical analysis or “T.A.” for short, as a sort of
framework that traders use to study and make use of the price movement of a market.

The primary reason that traders use T.A. is to make predictions about future price movement
based on past price movement.

Technical analysts believe that all current market variables are reflected via the price movement
or price action on a price chart. So, if we believe that all market variables are reflected via price
movement, it only goes to reason that we don’t really need much else to analyze and trade the
markets besides price. I am a technical analyst and so are the members in my trading
community, we prefer T.A. because we agree with the idea that all market variables are
reflected via price action, so we see no reason to use other means to analyze or trade the
market. That’s not to say that having some knowledge of fundamentals and news events is a
bad thing, but we just don’t rely on them heavily (we discussed Fundamental Analysis in Part 5).

Technical analysts look for patterns on the chart that tend to repeat themselves; they do this to
develop their trading edge from. The underlying logic here is that since most price movement is
driven by human beings, certain patterns will repeat themselves in the market as human beings
tend to be repetitive in their emotion and interaction with the market.

Technical analysis also encompasses learning to analyze the market structure; find trends,
support and resistance levels and generally learn to ‘read’ the ebbs and flows of a market.
There is obviously discretion involved here and I will be the first person to tell you that T.A. is
more of an art than a science. That said, it is something you will get more comfortable with and
better at given time and practice. T.A. forms the back-bone of my core trading method of price
action, which is simply a derivative or off-shoot of ‘traditional T.A.”, except with more clarity and
more concise strategies that don’t involve confusing forex indicators or things like Elliot Wave
Theory that are far too messy and open to interpretation for me to believe they are worth trading
or teaching.

Most traders instantly think of a price chart like the one above when someone mentions the
word “technical analysis”. Price charts provide us with an amazing amount of useful data that
paints a complete picture of a market’s historical and current supply and demand situation, as
well as the price levels that the market participants have deemed the most important. As
technical analysts we need to pay special attention to these price levels as price will tend to
respect them again and again, indeed, much of my price action trading course is built around
learning to identify and trade price action setups from key levels in the market. Price charts are
also a reflection of all market participants’ beliefs about the market and market variables, so by
focusing your analysis and trading on a market’s price chart you can streamline your trading and
at the same time analyze the end result of everything that contributes to the price movement of
a market.

Jump To Next Chapter – Part 11: How to Make a Forex Trading Plan

Jump Back To Start – Forex Trading Beginners University

Syllabus Of All Chapters

Part 1: Introduction – What Is Forex Trading ?

Part 2: Forex Trading Terminology

Part 3: Long or Short ? Order Types And Calculating Profits & Losses
Part 4: What is Professional Forex Trading?

Part 5: What is Fundamental Analysis?

Part 6: What is Price Action Trading Analysis?

Part 7: Introduction to Forex Charting

Part 8: What Is A Forex Trading Strategy?

Part 9: Common Forex trading mistakes and traps

Part 10: What is Technical Analysis

Part 11: How to Make a Forex Trading Plan

Part 12: The Psychology of Forex Trading

Part 13: Professional Price Action Forex Trading Strategies