What is technical analysis?

In the financial markets, there are two main methods of market analysis. Both these methods are employed by traders in order to analyse price movements and make wise investments.

These two methods are known as Technical Analysis and Fundamental Analysis.

The main difference between the two schools of thought is their approach towards their analysis of the market. To determine the future activity of an asset or commodity, technical analysis studies its historical performance, focusing on its price movements in the market. Conversely, fundamental analysis concentrates primarily on external factors that include economic, geopolitical and social conditions, and how these affect or could affect the price of an asset.

In this section, we will look at the basics of technical analysis in more detail, examine the importance of chart patterns, moving averages and indicators, and show how you can use technical analysis to improve your trading style.

Did you know?

If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.

Word of the day
"Swing Trader" - A currency trader who places short-term trades in order to benefit from short-lived trends.
Pro Tip

Most market activity occurs when at least two market centres are open at the same time.