Understanding Technical Analysis

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Forex Technical Analysis

• Presented byThe Forex Secret

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What is Technical Analysis?

• Technical analysis is the framework in which
  forex traders study price movement. The theory is
  that a person can look at historical price
  movements and determine the current trading
  conditions and potential price movement.

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Understanding Technical Analysis
The study of historical price action in order to
identify patterns and determine probabilities of
future movements in the market through the use of
technical studies, indicators, and other analysis
tools.
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Contd

• Technical analysis boils down to two things

• Identifying trend
• Identifying support/resistance through the use of
  price charts and/or timeframes

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Contd

• Markets can only do three things move up, down,
  or sideways.
• Prices typically move in a zigzag fashion, and as
  a result, price action has only two states

• Range when prices zigzag
• Trend prices either zigzag higher (up trend, or
  bull trend), or prices zigzag lower

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Why is technical analysis important?

• Technical analysis of a market can help you
  determine not only when and where to enter a
  market, but much more importantly, when and where
  to get out.

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How can you use technical analysis?

• Based on the theory that the markets are chaotic
• But at the same time, price action is not
  completely random
• Mathematical Chaos Theory proves that within a
  state of chaos there are identifiable patterns
  that tend to repeat.

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Contd

• This type of chaotic behavior is observed in
  nature in the form of weather forecasts.

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For Example
Most traders will admit that there are no
certainties when it comes to predicting exact
price movements. As a result, successful trading
is not about being right or wrong its all about
determining probabilities and taking trades when
the odds are in your favor.
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Contd
 Part of determining probabilities involves
forecasting market direction and when/where to
enter into a position, but equally important is
determining your risk-to-reward ratio.
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