Technical Analysis is Based on 3 Aspects and Factors Common in the Market:

1. Price Moves in Trends

Prices move with trends. Once a trend sets in, the market tends to keep going that way. It rarely reverses. Most trading plans rely on this idea. They call it trend trading.

2. Price Discounts Everything

Foreign exchange analysis focuses exclusively on price action, operating under the assumption that at any given moment, a currency's price encapsulates all factors, both realized and potential, that influence it, including a nation's economic health and fundamental aspects. Consequently, the sole focus remains on examining price, which is the direct outcome of the forces of supply and demand for that specific currency in the marketplace.

3. History Tend to Repeat Itself

Price movements tend to happen again and again. The fact that the market repeats itself comes from how investors think: in other words, forex traders usually react the same way to the market. Analysis uses patterns to study and understand these price changes. These charts show past data, but they still matter because they show patterns that often happen again.

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Market analysis helps spot trends and set entry plus exit points for trades.

The whole point of these analysis methods is to help you figure out when the market's trending and when it's just moving sideways. If a forex pair picks a direction, you want to jump on board. If it's just bouncing around, you're going to get whipsawed and lose money - nobody wants that.

Regrettably, numerous participants actively oppose the prevailing trend, attempting to buy or sell against the direction of momentum, often in an effort to anticipate a market peak or trough, only to see the market continue its established course.

A frequent error traders make is to add to a losing position, which exacerbates a loss. This strategy is particularly ineffective in a strongly trending market and is something that seasoned traders avoid. Remember that the trend is your ally: never trade against it.

This analysis studies alert investors of high probability setups and there are no certainties in financial market. Profits come from using tested strategies and methods to find a trending currency pair and taking trade positions in the same direction of the market price trend.

Because many investors and traders use similar tools, analysis can make things happen just by expecting them. If a lot of investors and traders see the same price as a good time to buy, the price will likely rise as everyone does the same thing. But how long will these moves last?

Understanding these analysis methods gives the charts real meaning. You'll start to see why prices move the way they do.

Charts are used with Indicators to look for chart patterns which have occurred in past under certain conditions. When these conditions are noted again, you as a forex trader can use the past chart patterns studies to make a buy or sell decision with increased probabilities of success because it has happened before.

Some of the most common indicators include:

MAs Moving Averages Indicator
Relative Strength Index RSI Indicator
Stochastic
Moving Average Convergence Divergence MACD Indicator
FX Fibo Retracement Indicator
Bollinger Band

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Most indicators are typically displayed separately from the trading chart, usually below it. This is because these indicators often utilize a different scale compared to the price chart.

Some indicators sit right on the price chart. Moving averages and Bollinger Bands are examples. These are known as overlays.

You'll find explanations for these indicators in the course: List of All Indicators - Technical Analysis Guide - Learn Technical Analysis Guide - Technical Analysis Examples.

SUMMARY

Technical Analysis Relies on Defining Probabilities
Technical Analysis Uses History of Price Patterns
Technical Analysis Uses Several Analytical Tools (Technical Indicators)
Technical Analysis Uses Patterns
Technical Analysis Uses Many Chart Time frames

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Most traders prefer analysis over fundamental analysis, because Fundamental analysis is a more difficult strategy to implement as it is required for one to have a lot of knowledge and experience required to successfully analyze the enormous and fundamental data and economic reports. In addition forex fundamental analysis isn't also very accurate since it involves looking at many factors all at once which might be interpreted differently by other investors and traders.

However, forex fundamental analysis that involves news trading is unpredictable and it's not so easy to interpret economic news reports.

While mastering this form of analysis may not be effortless, you might find it less demanding to learn than fundamental analysis altogether. Acquiring proficiency in the required analytical methods will likely take less time and prove easier due to its nature, which adheres strictly to predefined analytical rules.

To learn how to trade currencies successfully, it is important that you as a trader understand the 3 analysis strategies, shown:

1. Forex currency pair moves will always follow a trend which can be identified by looking at the patterns or the candlesticks charts. If any investor tells you that you as a FX trader can also profit from the counter-trends consistently it will not be possible because the trend is the only proven method of making money in Forex.

2. The market forces will drive the currency up or down depending on supply and demand. Factors like economic news releases might play a role in determining the demand supply of a currency. Forex analysis seeks to measure the demand supply of any currency using various analysis tools & indicators. The demand & supply is reflected in price action. Therefore, by simply looking at the price movements themselves you can try and predict what direction the price is likely to move towards using one or 2 technical indicators - analysis indicators like the moving average MA or support and resistance levels.

3. The market shows the history of past prices and follows the current trend until it changes direction. Some important indicators used to spot these market changes are Moving Averages, MACD, and Bollinger Band indicators.

When a currency enters a phase of consolidation - meaning an absence of a clear trend - a shift in analytical methodology is required to correctly interpret the trading market. In such sideways, ranging markets, one should instead rely on support and resistance levels, alongside breakout strategies, for effective analysis.

When the price goes back, use patterns and tools to see if the current trend will keep going or change direction.

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