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Let's start with the assumption that underlie technical analysis. In this case I will take an extreme approach, so that you can understand how a technical analysis used to gain profit in forex trading. Of course, in real world it's not true. You can integrate the both analysis (fundamental and technical) in order to obtain the best trading system for you.The chartist (those who do technical analysis), believe that they can see patterns in the movement of exchange rates in the future based on exchange rate movements observations in the past. In short, they're always said: "History always repeats itself." Philosophy is of course contrary to the fundamentalists in which investment decisions about value of a currency are based on the fundamental economic factors, political, monetary in the countries concerned.
Main weapon of the technical analyst is the graph (chart - that's why they called chartist). Through this chart they can see the trend that is in progress, time frame of trend, the volume of transactions and existing psychological level. If you have been able to find out 4 them, of course the profit will flow immediately into your possession. Let me sum it up:
1. Trend that is in progress
2. Transaction volume
3. Psychological level (support and resistance)
4. Time frame of those activity.
Yup, that's it. Indeed, the purpose of the chartist is to the four of them. But now the question becomes how accurate is our ability to predict the price? Well that's what we should continue to improve day by day. There is no perfect method of both fundamental and technical. Experience itself play as a central role here.
Technical analysis has its own section or some different basis of analysis. In general technical analysis is divided into several major branches, namely:
1.Indicators
1.1 Trend Indicators
1.2 Oscillator
1.3 Custom (fractals, williams, etc)
2.Elliot Wave
3.Fibonacci Sequence: retracement, arc, fan, expansion
Is technical analysis have a weakness? Of course. Nothing's perfect. Let me conclude the weakness of both analysis:
Fundamental analysis weaknesses:
-It takes time gather information.
-Often contain subjective opinion because many people involved.
-Better applied to the long term trading period. -Difficult to apply in the market that are not efficient.
Technical analysis weaknesses:
-Require more data to support prediction's accuracy.
-Highly dependent on the chartist's ability. Each chartist have a different method and each of them might not be well-matched one another.
That's it for the introduction to technical analysis. In the next part we are directly learning with the graph. You certainly do not want too much information that eventually even make you dizzy, is not it?
