Jake Tuff 
Technical analysis in forex trading serves to identify price trends and make trading decisions accordingly. To fully comprehend technical analysis, one should learn about support and resistance levels as part of their education in this discipline.
Have you heard the phrase, “history repeats itself?” This is one of the fundamental principles behind technical analysis.
Candlesticks
Candlesticks are an indispensable forex trading tool, as they compress a vast amount of essential information into one visual bar. Candlesticks illustrate the difference between opening and closing prices as well as market trends and volatility indicators in an easily understandable visual representation.
A candlestick’s real body shows the difference in prices at which it opened and closed during a session, wherein small real bodies represent upward price movement, while larger real bodies reveal decreasing prices. Furthermore, its top and bottom wicks reveal market volatility.
Candlestick patterns with long wicks may indicate lack of momentum in an economy. A dragonfly doji could indicate there has been some jostling between buyers and sellers but neither side was successful in taking ground.
OHLC bars
OHLC bars (also known as open high low close charts) are an invaluable asset to technical traders. They quickly and clearly display four pieces of data: an asset’s opening price, high price, low price and closing price over time – an effective way to spot trends and identify key price patterns.
The vertical height of an OHLC bar represents its volatility over that timeframe; higher vertical bars reflect strong momentum while low ones indicate indecision. Traders can also look out for key reversal patterns on an OHLC chart such as bearish or bullish engulfing patterns to find opportunities to trade these trends.
Utilizing the proper tools can assist in making more effective trading decisions, but no system can predict market behavior exactly. Therefore, it is crucial that traders recognize that their trading strategy serves only as an outline and not an assurance of success.
Moving averages
Moving averages are an indispensable tool in forex technical analysis, providing an essential way of smoothing out short-term fluctuations and identifying an underlying trend. Unfortunately, they’re not perfect and do have their limitations.
Technical analysis also makes use of price patterns which tend to repeat themselves, on the assumption that traders act predictably and a particular price level may act as either support or resistance point in the past; and will most likely do so again in future.
Traders can use this information to form trade ideas and make informed trading decisions with high probability. But they should keep in mind that just because something happened previously doesn’t mean it will happen again; economic data may affect markets in unexpected ways.
Trendlines
Trend lines are visual indicators that connect significant swing highs and lows on a price chart, providing traders with visual guidance of the direction of an ongoing trend, as well as potential trading opportunities. An upward trendline might reveal an area where buying pressure has helped stop price decline, leading to speculation on a possible support level where long positions might be initiated in anticipation of price rebound from this level.
Trend lines may present one drawback: their subjectivity. Since they must be drawn manually, there may be room for interpretation and variance when using trend lines as an analysis tool. To address this problem, traders can combine trend lines with other analysis tools; such as moving averages for validating trend line direction – an approach which increases chances of successful trading decisions.
Volume
Technical analysis employs chart patterns and indicators that assist traders in recognizing trends and forecasting price movements, while at the same time validating the strength of trends and spotting possible reversals.
Increased volume during a bullish market indicates the market wants to move higher while decreased volume suggests it is likely to reverse direction. Traders can use indicators which track order flow as another method to gauge liquidity.
These tools can assist traders in making more informed trading decisions. However, their reliance on historical data limits their usefulness; also often missing fundamental factors like financial health or economic conditions of companies or markets. Some patterns can become self-fulfilling prophecies if too many traders follow similar signals.
