Trading forex is not a game of cards where you invest money on the basis of your sixth sense or gaming skills. Trading in the forex market requires analysis of the past trends and its effect on the future value of the currencies. When we talk about analysis, we are referring to the three types of financial analysis: fundamental analysis, technical analysis, and sentimental analysis.Here we will talk about technical analysis, which is also known as ‘charting’ and one of the favorite types of analysis. In simple terms, it involves observing the graphs depicting the past trend of a currency to forecast its future value.
Here we will talk about technical analysis, which is also known as ‘charting’ and one of the favorite types of analysis. In simple terms, it involves observing the graphs depicting the past trend of a currency to forecast its future value. Here are the top-five advantages of technical forex analysis:
One Variant Analysis
Unlike fundamental analysis where a trader takes into account all the economic indicators to forecast the future value a currency pair, technical forex analysis focuses on one variable, which is the price movement. Technical analysts analyze the past trend of a specific currency in order to predict its future value.
Easy Availability of Data
As already mentioned, the technical analysis needs only one type of data and that is the market value of the currency over the past decade. This data can be easily obtained from several online sources. Try it out for yourself. Search for the historical trend or market price of any currency over the last few years and you will find several websites that provide this data free of cost.
Online Tools for Charting
Another lucrative feature of the technical analysis is that it is very easy to perform. You will find several websites that post the past value of a currency in a chronological manner. Just copy the data, paste it into a spreadsheet and generate a graph. This is the most basic and manual way of performing technical analysis. The World Wide Web is full of free online and downloadable technical charting tools. Some of the technical analysis providers are so efficient that they extract the data directly from the forex websites and generate the graphs.
Easy Identification of Trends
The price movement plotted in a technical forex chart or a line graph makes it very easy to identify the past trend. Even an amateur can identify the ups and downs in the graph. This also filters the search and makes it easy to identify the factors affecting the price. Suppose you spotted a sudden steep in the line graph of a specific currency. Since technical charts are plotted against time, you would, therefore, know exactly when the price went down. Now, you just need to research about what happened during that specific time in the past that caused the value of the currency to take a sudden downward trend.
Technical Analysis Is Inexpensive
As previously mentioned, technical analysis can be performed free of cost. You just have to search for the right software.
In a nutshell, technical analysis is the easiest and cost effective way of predicting market movements. With just a couple of clicks online and you can get technical charts for as many currencies as you want.