Broker to Trading

What is technical analysis ? Technical analysis is chart based analysis. It makes the assumption that useful projections can be made based on chart data. Underlying it is an assumption that the chart captures regularities in the market, for example recurring patterns or recurring significance to value levels (to some extent everything used in a chart can be referred to as a pattern, but patterns have a particular reference in terms of shapes which form on the chart).

So to trade using technical analysis, the trader applies some kind of analytical tool or approach to capture the regularity. For example, they may look for the formation of a particular pattern, in effect looking for clues on the chart, then trade on that projected pattern formation. As the trader may find, frequently the expected pattern does not happen. But sometimes it does. Even when it does, it can be obscured by noise which can make it difficult to trade.

What about technical indicators ? Technical indicators are tools which use charting data to look for recurring patterns, for example based on deviation from a mean. So the technical indicator has an assumption about the market and looks for signs of this context existing. Again, technical indicators can be wrong.

It might be asked whether the trader could simply look for direction in a chart. This is possible, especially for short term trading, as momentum can carry direction. However even here, the market is prone to complexity. That is even if it finds a direction over time, this can be composed of moves (retracements) in the opposite direction.

Retracements can turn into moves in the opposite direction, but may not as well. In this situation, a type of technical analysis may be helpful, that is multiple time frame analysis. There are a number of components to this type of analysis, but in general it looks at different time frames from the one currently being traded on.

For example, on a short term momentum driven trade, it can be helpful to look at shorter or longer term time frames (or both) to see what factors may affect direction, for example support and resistance and patterns (all of which tend to be interlinked). Patterns may be forming, for example a trend end pattern on a lower time frame, which may affect direction on the time frame being traded on.

The trader may not need to look out for patterns in some types of trades, there are tools available which look for pattern formation, and even show a probability of that pattern forming. There are also tools which can apply entry and exit signals on the chart, based on an analytical premise.

The pick of best trading platform for technical analysis is FOREX.com's Advanced Trading Platform. This partly because it has clear charts which let the trader do something which can be considered important, to look at the chart themselves and acquire a hypothesis themselves about what may happen. It has a wide range of technical indicators for those who want to try these as well as graphical tools for drawing trends lines and so on onto the chart. There are additionally pattern prediction tools as well as tools for providing entry and exit signals on the chart which the trader can use or build.