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What is Technical Analysis?
Using technical analysis, traders analyse historical price movements in order to predict future movements. This may not sound very effective, but it is. In financial markets, price movements repeat themselves. This is because humans move price and humans are hard wired to follow patterns. The easiest way to explain this concept is to show you.
Above, you can see that whenever price approaches the 1.0625 area, it moves away. This indicates that you might want to consider selling USD/CAD next time it reaches 1.0625.
Why would you sell?
Well, the last three times price reached 1.0625 it reversed. So, using technical analysis, we assume that price might reverse again.
Technical analysis is the most common way to trade the Forex market.
Technical analysis is a self-fulfilling prophecy. If hundreds of thousands of traders are looking at the same analysis, they will trade the same way. The fact that they are all trading the same way pushes price in that direction.
USD/CAD reversed from 1.0625 twice in a row. Next time price reaches 1.0625, thousands of traders short expecting a reversal. The fact that so many traders are shorting causes price to fall.
Technical analysis is not as easy as it sounds. If you make a mistake in your analysis, you may short when most traders go long. Learning to use technical analysis properly takes a lot of practice.
Don’t worry though…
… I have you covered. After the Forex Education academy you will graduate to the free forex course. In the course you will learn to put safeguards in place to protect your account.