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Understanding the Psychology of Technical Analysis in Forex Trading

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Technical analysis is the most used kind of analysis in Forex trading. It is relatively easy to understand and comprehend for a beginner since it is comprised of charts, past data, trends and equations. Any kind of technical analysis basically uses past data and therefore is only a reflection. It does not really shape the manner in which the movements will take place in the future.

What do Technical Analysis Charts Show?

When you look at the charts generated by technical analysis, you look at what has happened in the Forex markets. These charts and trends cannot dictate the manner in which the Forex rates will move. Depending on the kind of chart that you are looking at, you will get to see the range in which a currency operates and the manner in which it reacts to specific movements in other currencies. These can be used to guess the way in which future movements can take place.

This is why you can find a technical analysis charts in almost any forex broker out there, rather if it’s the big brokers like plus 500 or the others like eToro.

Times When Technical Analysis Charts Can’t Help

Since technical analysis charts are only a reflection of the past, they are of no use when the factors that actually affect currency rates come into play. These are the times when you will see blips and major trend changes in the charts that are created. For example, if the Federal Reserve raises interest rates unexpectedly or the Chinese Government decides to stop buying US treasuries, there will be changes in the market that are beyond any kind of prediction from technical analysis. In the former case, the dollar is likely to rise higher and in the latter it will surely fall.

The Psychological Impact of Technical Analysis

The reason why the predictive aspect of technical analysis works is very simple. Almost all Forex traders and brokers look at the standard charts, the first thing in the morning. In most cases, those who know how to look at charts arrive at the same conclusions and therefore take similar courses of action. For example, if the euro has been in an up channel and is at the bottom of the channel, most traders looking for an opportunity in the euro will place buy orders. Since there are a large number of people placing orders, the demand for the currency goes up giving it a further boost and making the predictions come true.

What this tells us is that technical analysis is not something that dictates the manner in which the Forex rates move. There are other more fundamental aspects such as employment rate, gross domestic product of a country, consumer sentiment, federal rates and geo-political scenarios that govern whether the currency of a country will become strong or weak. However, it cannot be denied that technical analysis and the mass manner in which it makes people move in the same direction has the ability to make some of the trends come true. In a manner of speaking technical analysis is a self-fulfilling prophecy that becomes a reality due to the actions of a large number of Forex traders.

Category: Investing
  • Jonas says:

    For goods and stocks the best idea technical analysis method which not less than seventy percent of times gives consistent profits. Please tell me, thanks!

    March 7, 2013 at 5:47 pm
  • Carola says:

    You never know exactly what the returns for online foreign exchange tradings are?.Most sites hype it a lot I’m beginning to possess doubts.I’m a new comer to this and merely searching for a worthy investment plan.May i make Fifty Dollars by buying and selling with $100 or Five Hundred Dollars from One Thousand Dollars inside a month? Or do you know the average returns

    March 7, 2013 at 7:53 pm
  • Victor says:

    Hi are you able to please let me know how you can learn technical analysis of share market?on which basis the stock values of the particular company are predicted?do you know the reliable websites for stock picks?

    March 12, 2013 at 8:35 pm
  • German says:

    in foreign exchange buying and selling what’s a nice income management concepts that certain should consider permanently and consistent result.

    March 14, 2013 at 7:19 am
  • Elizabet says:

    Take a look:

    http://world wide web.babypips.com/school/

    Thank you.

    March 19, 2013 at 12:27 pm
  • Dalila says:

    Yesterday i possibly could choose a regular, choose technical analysis and select a moving average and find out the chart using the graph. Now there’s not a way to determine this data. I personally use this data to trade options. Are you able to put this function in the chart being an option. Thanks

    March 20, 2013 at 5:45 pm
  • Dannielle says:

    I would like to explore the technical analysis, and particularly the breakaway gap modle. When you should buy? so when to market?

    March 22, 2013 at 5:34 am
  • Mabel says:

    I am a new comer to online trading and presently I am learning technical analysis.I have been searching all over the net and that i still haven’t found an ideal software that helped me to do technical analysis. What software would you suggest I ought to use? thanks

    March 26, 2013 at 1:01 pm
  • Waltraud says:

    Hello, Im trying to join the FX market and Im intrested in training in Technical analysis, so my question is which is the best course or certificate i can take to receive the best training on TA? Is there a well known one that i can sign up for? Please give me details.

    March 26, 2013 at 1:03 pm
  • Saundra says:

    Is technical analysis just hype or will it really work because I wish to begin to make more temporary trades and obtain involved more in buying and selling as opposed to just trading.

    March 26, 2013 at 1:03 pm
  • Nancey says:

    How can i get the best stock technical analysis on the internet?

    March 27, 2013 at 9:17 pm
  • Javier says:

    Can anybody suggest me any Technical analysis books on stock exchange, with special mention of the Indian market.Suggest me any postal course on Tech. Analysis of Stock exchange. I understand something concerning the Tech. analysis, but I wish to create a systematic method of discover the craft. Pl. assist me to.

    March 28, 2013 at 1:05 pm
  • Ja says:

    Which institute provide the best Technical Analysis course for novices in kolkatta,Individuals who wish to develop a career available or Share Market.

    April 4, 2013 at 9:07 pm
  • Tami says:

    I understand Warren Buffet is the greatest fundamental analysis investor but who’sOrare the most useful technical analysis traders?

    April 11, 2013 at 7:05 am
  • Lizette says:

    I’m trying to discover if your particular at-home job chance is perfect for real or otherwise. I’ve attempted to locate a website for that Technical Analysis. I actually do obtain a bite that shows us a map of where I’m able to find their whereabouts, but a bit more. I’m wondering if anybody in this region can verify this is actually a company. I favor to experience that one safe. Whether it is needed, I’m able to add some email which i caused by the organization. Any extra information or advice could be greatly appreciated.

    April 13, 2013 at 5:30 am
  • Doug says:

    My home is Asia which is not present with use technical analysis to take a position, because most TV financial loudspeakers, financial magazines only discuss the essential volumes of stocks which don’t always happen. Same with it present with use technical analysis to purchaseOrmarket stocks in US?

    April 26, 2013 at 9:18 am
  • TommyKay says:

    I am just beginning foreign exchange buying and selling and wondered what monitoring program might be best that i can start to do Technical Analysis with. It might be nice basically can use a totally free program or at best an inexpensive one but when I have to I’ll spring for any program that helped me to track foreign currencies and create a buying and selling strategy. Ease of use is essential because I am a totally novice trader. Any reading through materials for learning better TA or websites will also be greatly appreciated.

    July 30, 2013 at 5:15 pm
  • Superman says:

    Do daytraders use Technical Analysis only, or perhaps is a combination? I understand long-term traders use Fundamental Analysis but do long-term traders use Technical Analysis too?

    August 1, 2013 at 4:18 am
  • Brody S says:

    My home is Sydney, Australia. I want to call an entire and detailed group of information notes explaining technical analysis or planning from the-Z for foreign exchange buying and selling poses.

    August 13, 2013 at 6:13 am
  • MexicanDude says:

    You will find many courses with lots of claims, how do you select the ne perfect for me?

    August 25, 2013 at 8:05 pm
  • lets roll says:

    I’ve $5000 and I am thinking about buying and selling foreign exchange. Do you know the best brokers on the web?

    Also once they say minimum trade size micro unit (1k) does which means that I must buy a minimum of 1000 models that is for example for any currency (1.05) $1005?

    Also what’s the lot size? Would be that the selection of profit/loss? Like rather than attaining $1 for 1 pip gain $10 basically alter the lot size?

    Thanks

    November 6, 2013 at 9:49 pm
  • Moore, Ron says:

    I wish to learn as well as start buying and selling.. Any suggestions about what or to avoid?

    I wish to start soon, don’t wish to lose a lot of money and so i thought i start between $300 to $1000… help.. anybody??

    November 12, 2013 at 7:57 am
  • henryshensbcglobalnet says:

    I’m thinking about being a day-trader using spread betting as my vehicle.

    I wish to understand what from fundamental or technical analysis is on most benefit for day-buying and selling the real estate markets if you wish to consistently earn money when i know from my practice experience that trend buying and selling the minutes, hrs and also the days range, regardless of the direction is nice to follow along with to take plenty of little profits.

    Which from technical or fundamental analysis is better to make use of with regards to day-buying and selling – that is most effective in consistently earning money?

    November 27, 2013 at 5:24 am
  • Nick says:

    Hello,

    I exchanged foreign exchange for just one year, even i possibly could make $100 each day, but finally lost everything including my deposit. Anyway i possibly could comprehend the fundamentals.

    Now i believe to purchase share market. People state that this is actually the proper time to purchase stocks bcoz of reduced cost. Anybody make profit in share market? Or it’s also like foreign exchange?

    I’m working abroad. so please say tips to get a PAN card online.

    Because of all ahead of time.

    December 3, 2013 at 4:03 pm
  • Phillip123 says:

    like i understand you will find 2 primary schools of investment:

    technical analysis, trading in underrated investments and trading in management.

    exist other major techniques of investment people use?

    December 3, 2013 at 5:33 pm
  • veemodz says:

    I personally use technical analysis to purchase and sell stocks. The guidelines are joined right into a computer prorgam, back examined and enhanced to obtain the greatest possible netgains. Do you know the 3 most significant parameters you utilize to find out when you should sell?

    December 7, 2013 at 12:55 pm
  • Xavier Hawthorne says:

    How will the Efficient Market Hypothesis challenge the presumptions of Technical Analysis?

    Can someone help don’t know what she’s asking

    Thanks

    December 12, 2013 at 10:32 pm
  • LN13 says:

    Technical analysis indications like RSI,Stochastic etc.Which is right for intraday buying and selling?Which provides the purchase and sell correct signals?

    December 28, 2013 at 8:08 am
  • JOHN KAISER PHD says:

    If inside a given rally, there’s a retracement which touches .382 level or .5 level and bounces back the proportion prices are meant to increase further and when it breaks the .5 level the popularity should really have corrected. Fundamental essentials fundamental rules of Fibonacci Retracement put on Technical Analysis of Shares and Stocks.

    January 7, 2014 at 8:42 am
  • RxP DarkBox says:

    i learned about large amount of technical analysis utilized in daytrading and fundamental analysis in long term opportunities.which technical analysis suits for swing buying and selling( from a couple of days up to 1 week)?what all indications ought to be sought out accurate leads to swing buying and selling? i learnt many technical analysis in last couple of several weeks and today i recieve confusing signals. at same time some indications shows to purchase whereas other shows to hold back.i love to understand what others use for accurate results

    April 30, 2014 at 4:57 pm

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