FX TECHNICAL ANALYSIS
Cornerstone #1: currency price incorporates all available market information
Fundamental analysis often gets criticised by those who favour a technical-based strategy because the former
struggles to quantify
the mood of the markets and global news events. However, from a technical viewpoint this isn’t an issue, as the current price of a currency pair is thought to be absolutely accurate at
time. For example, if the markets are anticipating an economic data release
from the central bank,
technical traders will believe that anticipation is reflected in the current price of the relevant currency pair.
Cornerstone #2: price movements occur in patterns
Technical traders believe that the
price of currency pairs move in predictable trends, in between shorter periods when movements in price follow no pattern. The best
technical traders are able to
distinguish between these periods effectively, and thereby place trades which exploit the movements they can predict.
Cornerstone #3: history
repeats itself Tis is a key belief of technical traders
58 FX TRADER MAGAZINE January - March 2017 Chart B: GBP/USD Source: Admiral Markets
Chart A: EUR/USD that given
- that history repeats itself. Tere’s phenomenon that fuels this belief called ‘herd mentality’. It involves all the participants trading the financial markets and is based upon this premise: most of us react in the same way to any
given situation. For example,
the election of Donald Trump has caused investors to move away from government bonds and into private equities - because they share the view that his policies will be inflationary in nature. Tis is why we can make judgments as to how the market as
Source: Admiral Markets whole will impact currency price.
Cornerstone #4: focus on the what, not the why
This is an absolutely vital rule of technical analysis. Why the price of a currency pair changes doesn’t matter, it’s ‘what’ the currency price is which is
of substantial importance and
its movement history. Remember, technical traders view the current currency price as absolute (incorporating all information and
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