Forex Patterns and Forecast Methods Used Today For Successful Forex Trading!

This Article will outline the technical analysis and fundamental analysis used by professional forex traders to land huge profits in forex trading. This Article provides insight into the two major methods of analysis used to forecast the behavior of the forex market.

Technical analysis and fundamental analysis differ greatly, but both can be useful forecasting tools for the forex trader. They have the same goal - to predict a price or movement. The technician studies the effects, while the fundamentalist studies the cause of the forex market movements. Many successful traders combine a mixture of both approaches for superior results.

Note: If both fundamental analysis and technical analysis point to the same direction, your chances for profitable trading are much better.

So let us begin with the technical analysis:

Technical and Fundamental Analysis differ significantly, but both are extremely useful forecasting tools for forex trading. They have the same goal - to predict a price or movement. The technician studies the result, while the fundamentalist studies the why of the forex market movements. Many successful traders combine a mixture of both approaches for the best results.

Technical analysis is a method of predicting price movements and future market trends by studying what has occurred in the past using charts (discussed in another article). Technical analysis is concerned with what has actually happened in the market, rather than what should happen, and takes into account the price of instruments and volume of trading, and creates charts from that data as a primary tool for forecasting forex trading movement. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles

- Market action discounts everything: This means that the actual price is dictated by everything that is known to the market that could affect it. Some of these factors are fundamentals (inflation, interest rates, etc.), supply and demand, political factors (yes even the upcoming elections can be a factor) and market sentiment. But, the pure technical analysis is only concerned with price movements, not with the reasons for any change. - Prices move in trends: Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns, there is a high probability that they will produce the expected results.

There are also recognized patterns that repeat themselves on a consistent basis. - History repeats itself: Forex chart patterns have been recognized and categorized for over 100 years, and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time. Since patterns have worked well in the past, it is assumed that they will continue to work well into the future.

Disadvantages of technical analysis

- Some critic claim that the Dow approach ("prices are not random") is quite weak, since today's prices do not necessarily project future prices; - The critics claim that signals about the changing of trends appear too late, often after the change had already taken place.

Therefore, traders who rely on technical analysis react too later, hence losing about 1/3 of the fluctuation; - Analysis made in short time intervals may be exposed to "noise", and may result in a misreading of market directions; - The use of most patterns has been widely publicized in the last several years.

Many traders are quite familiar with these patterns and often act on them in concern. This creates a self-fulfilling prophecy, as waves of buying or selling are created in response to "bullish" or "bearish" patterns.

Advantages of Technical Analysis

- Technical analysis can be used to project movements of any asset (which is priced under demand/supply forces) available for trade in the capital market; - Technical analysis focuses on what is happening, as opposed to what has happened, and is therefore valid at any price level; - The technical approach concentrates on prices, which neutralizes external factors.

Pure technical analysis is based on objective tools (charts, tables) while disregarding emotions and other factors; - Signaling indicators sometimes point to the imminent end of a trend, maintain profit or minimize losses.

Various techniques and terms you will want to know

Many different techniques and indicators can be used to...Get the Full Story Here => Forex Trading System Information - Forex Patterns and Forecast Methods Used Today For Successful Forex Trading!