Forex Technical Analysis

Technical analysis or graphical analysis

Technical analysis, which we might otherwise call graphical analysis, is simply an empirical approach to determining the direction of the courses. It was introduced by Charles Dow during the 19th century, so the technical analysis is based on Dow's Theory.

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Initially, forex technical analysis dates back to times well before the 19th century. Indeed, the candlestick charts were already used by the Japanese to anticipate rice prices around the 17th century.

In forex technical analysis, two major currents of thought must be distinguished. We shall speak here of chartist analysis and modern analysis.

What is the difference between chart analysis and modern analysis?
Before addressing the technical topics, let us first underline that these methods are by no means contradictory, besides many traders appreciate to mix the genres to make the best of them.

Chartist analysis

Chartist analysis consists in identifying configurations directly on prices, for example Japanese candlestick configurations or the use of trend lines. What is important to remember is that in chart analysis we only look at the prices on his chart.

Modern analysis
The second, so-called "modern" approach was introduced in the 1970s and 1980s with the beginnings of computer science, it considers that the interpretation of "raw" graphics goes beyond human understanding, so it is necessary to use mathematical indicators to facilitate course interpretation. These indicators are very often of statistical origin and allow the modeling of concepts not obvious to the eye that are: the tendency of bottom, the volatility, the overbought, ...

An important feature of technical analysis is that it is an empirical approach that is uncertain, all analysts make mistakes, what matters is to be able to predict a little better than chance. In technical analysis, it is not difficult to make a graph say something and its opposite, the important thing is to "capture" the intentions of the market.