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Forex is the largest financial market in the world where $7.2 trillion is traded every day. Forex traders invest in the forex market popularly known as Forex for speculation purposes. Forex traders are attracted to forex because of the following reasons:

Leverage - leverage means that traders can make more money in forex by investing little of their own capital. This is because traders can borrow money to trade with from their forex broker using leverage.

Liquidity - The fact that forex is the largest financial market in the world means that there are very many traders trading the forex market at any time of the day or night during the forex market week. The fact that there are many traders investing in this market make the forex market a very liquid market meaning trader can open and close trade in a matter of seconds.

Low Transaction Cost - Because in forex there are many traders trading at any one given means that the transaction costs are lower because of this large volume of trades taking place in the forex market. The only transaction cost paid by the trader is the spreads; no other cost is paid by the traders. The spread is also only when a trader opens a trade; therefore if a trader does not trade then they do not pay any cost.

This tutorial presents the various forex education courses that technical traders or traders who want to learn technical analysis can learn from. After traders have learnt the basics of forex trading it is then time to learn more about technical analysis topics that they can use to trade with.

The forex technical analysis lessons can guide beginners on how to study the various technical analysis concepts.

Basics of Forex Technical Analysis

Candlestick Charts

For technical traders the basic technical analysis tool that they use is the forex chart. There are 3 types of forex charts: line charts, bar charts and candlestick charts. The type of forex chart most commonly used by forex traders is the candlestick chart. This is because the candlestick chart has a visually appealing format that clearly represents the movement of prices, by displaying different colors for different movements; that blue color when prices close higher than they opened or red color that represents when prices close lower than they open. In addition these candlesticks show the distance between the open and close price and this forms the body of the candlestick. This body of the candlestick is looks similar to the wax part of a real candle. The highest point of the price will be plotted with what as known as a shadow, the shadow is a thin poking line that is drawn above the candlestick and it looks similar to the wick of a real candle. There is also another shadow drawn below the candlesticks and this one represents the lowest point of the price.

The information plotted by the candlesticks is known as OHCL - which represents Opening price, High, Low and Closing price.

Japanese candlesticks were developed in Japan by a traditional rice trader who used to trade futures, his name was Homma Munehisa, he later moved to trading the Tokyo exchange market that was in the 18th Century and he made a fortune trading the Tokyo exchange market using these candlesticks; He is said to have made over 100 consecutive winning trades.

In addition to showing the graphical representations of price traders also use candlestick patterns to gauge and determine the strength of the price movement. Traders also study these candlestick patterns so as to learn how to interpret and trade signals from the various candlestick patterns. Traders wanting to about the various candlesticks patterns can learn from our forex trading section under the technical analysis topics, the various candlestick patterns used to trade Forex are:

1.Long and short Candlesticks

2.Spinning Tops and Doji Candlesticks

3.Hammer Candlestick Pattern and Hanging Man Candlestick Pattern Candlesticks

4.Inverted Hammer Candlestick Pattern and Shooting Star Candlestick Pattern Candlesticks

5.Piercing Line Candlestick Pattern and Dark Cloud Cover Candlestick Pattern Candlesticks

6.Morning Star Candlesticks, Evening Star Candlesticks and Engulfing Candlesticks Patterns

Support and Resistance Levels

Some traders also refer to these levels as support and resistance lines. The concepts of support and resistance levels refers to price zones where it is difficult for the price break through and move beyond these levels.

At these levels traders are likely to perceive the price of the currency pair as being cheap or being expensive.

Support

Support prevents the price of an asset from getting pushed downwards. Support levels are therefore regarded as the floor because these price levels prevent the market from moving prices downwards past a certain point.

Resistance

Resistance prevents the price of an asset from getting pushed upwards. Resistance levels are therefore regarded as the ceiling because these price levels prevent the market from moving prices upwards.

Therefore, these levels may be used by trader to determine where to open trades at the points where there is a high risk: reward ratio. For example a trader may open a buy trade at a support level and place a stop loss a few pips below that level. The trader buys at this point because they perceive the price to be cheap. A trader may open a sell trade at a resistance level and place a stop loss a few pips above the resistance level. The trader sells at this point because they perceive that at that point the price is very expensive and therefore there will be less people willing to buy that currency because the price is very expensive and therefore the price is likely to start moving down soon rather than continue to move upwards.

Trend Lines

Trend lines are used to determine the general direction of the forex market.

Sometimes support and resistances are formed diagonally in a similar way like a staircase. This forms a trend, a trend is a sustained movement in one direction either upwards or downwards.

A trend line depicts these points of support and resistance for the price.

Trend line is an aspect of technical analysis that uses line studies to try and predict where price will move next.

A trend line is a straight diagonal line that connects two or more price points and then extends into the future to act as a line of support or resistance.

Trend lines are based upon the idea that markets move in trends. Trend lines are used to show three things.

  • The general direction of the price movement up or down.
  • The strength of the current price movement and
  • Where future support and resistance of the current price movement are likely to be located.

If a trend line forms in a certain direction then price usually move in that direction for a period of time until a time when the trend line breaks.

Upward trend line - If price of a currency is moving up then a line is formed that is also moving up. This line is called an upward trend line.

Downward trend line - If price of a currency is moving down then a line is formed that also moves down. This line is called a downward trend line.

Moving Averages

Moving averages are also used in forex trading to determine the general direction of the forex market. Moving average is a trend following indicators that is used to show the direction of the forex market.

The most common trading method of determine the direction of the trend is by using two moving averages to form the moving average crossover trading system. The moving average crossover trading system is covered in our forex trading strategies section. The moving average crossover system is made up of two moving averages one with a lower period and the other with a higher period, for example a trader may use the 5 period moving average and the 7 period moving average, when price of a currency is moving up the two moving averages will also be moving up and when prices are moving down the two moving averages will also be moving down. Traders can also identify when a trend changes its direction because the two moving averages will cross over each other once there is a change in the direction of the currency movement. This crossover signal is used by traders to determine when to open a new trade after the crossover signal has been generated and the two moving average start to move in the same direction. This crossover signal is also used to determine when to close a trade and take profit after there is a crossover in the opposite direction.

Bollinger Bands

Bollinger bands is a very popular forex indicator, it is also a trend following indicator and it is used to show the general trend of the forex market. The Bollinger band is made up of three lines, these are:

·Middle band - this is a moving average of 20 price periods

·Upper Band -shows upper limit of price

·Lower Band - shows lower limit of price

The middle band will show the general direction of the trend whether up or down.

The upper band is where a trader will open a sell trade if the market trend is down or close their buy trade and take profit at this level if the market is trending upwards.

The lower band is where a trader will open a buy trade if the market trend is up or close their sell trade and take profit at this level if the market is trending downwards.

Fibonacci Retracement Levels

Fibonacci retracement levels are popularly used to determine the levels where price retracements are likely to go up to. Traders use these retracement levels to determine where to open trades after a price retracement.

Fibonacci retracement levels are covered in the learn forex lessons section of this website under the technical analysis topics. Trader can learn how to use the Fibonacci retracement levels, which levels are commonly used to open trades and how to plot these retracement levels using Fibonacci retracement indicator.

All these technical analysis methods are also covered on the forex trading strategies section of this learn forex trading course website and trader can learn more about these concepts and get example of these concepts are used in trading from this forex strategies section that has numerous screenshots illustrations of these technical tools and how they are drawn on forex charts along with explanation of they are used to generate forex trading signals.

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