Technical analysis is the study of historical price action.
So how the heck does one “study historical price action“?
In the world of trading, when someone says “technical analysis”, the first thing that comes to mind is a chart.
Technical analysts use charts because they are the easiest way to visualize historical data!
Technical analysts live, eat, and breathe charts, which is why they are often called chartists.
Chartists believe that price action is the most reliable indicator of future price action.
You can look at past data to help you spot trends and patterns.
Spotting trends and patterns could help you find some great trading opportunities.
What’s more is that with all the traders who rely on technical analysis out there, these price patterns and indicator signals tend to become self-fulfilling.
As more and more forex traders look for certain price levels and chart patterns, the more likely that these patterns will manifest themselves in the markets.
You should know though that technical analysis is VERY subjective.
Just because Michelangelo, Donatello, Leonardo, and Raphael are looking at the exact same chart setup or indicators doesn’t mean that they will come up with the same idea of where prices may be headed.
The important thing is that you understand the concepts under technical analysis so you won’t get nosebleeds whenever somebody starts talking about Fibonacci, Bollinger Bands, or pivot points.
Now we know you’re thinking to yourself, “Geez, these guys are smart. They use crazy words like ‘Fibonacci’ and ‘Bollinger’. I can never learn this stuff!”
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