What is the so-called Technical Analysis for?
Technical analysis is the study of repeated patterns and movements in the market caused by the standard behavior of traders. Traders use technical analysis to monitor current and historical price movements of a currency pair, help determine market trends and predict possible entry and exit points for their trades.
Let's look at some examples of commonly used tools:
SUPPORT AND RESISTANCE LEVELS
These levels are price points that the market constantly hits and then reverses its direction. Support usually refers to points where the price drops, but never breaks before rising again. Resistance refers to points where the price rises but never breaks before falling again.
These display trend lines about recent market movements on a chart or in a separate area below the chart. Bollinger Bands, Average Directional Index (ADX) and Moving Averages are examples of indicators. Indicators may be behind schedule (they analyze past market price movements) or lead indicators (these future forecast price movements).
A chart pattern is a series of price points that move in a particular arrangement and, once completed, predict market movements. Some common patterns are flags, channels and triangles. You can also plot more complex patterns, such as ABCD patterns or Fibonacci levels.