One of the basic principles of technical analysis is that the historical price action allows predicting future price action. Since the forex market is a daily basis (24 hours), there is a large amount of data that can be used to predict future activity prices, thus increasing the statistical relevance of the forecast. This makes it the perfect market for traders who use technical tools, such as trends, charts and indicators.
It is important to note that, in general, the interpretation of the technical analysis remains the same regardless of the assets that are kept under control. There are literally hundreds of books dedicated to this field of study. Here we report quickly why technical analysis is a popular tool in the Forex market.
There are many big players in the forex market, such as hedge funds and large banks, each with advanced software systems to constantly monitor any discrepancies in the various currency pairs. In light of these programs, it is rare to see serious inconsistencies lasting more than a few seconds. Many traders turn to technical analysis of forex because it tends to consider the current exchange rate of the market all the economic, political, social and psychological factors that influence the price. The trend and the flow of capital become the essential elements, compared to the identification of anomalies in the rates, given the large number of investors and the exchange consisting of cash daily.
Trend or Range
One of the biggest goals of the technical operators of the FX market is to determine whether a given pair will follow a certain trend or if he will make lateral movements thus remaining in a specific range (range-bound). The most common method for determining these characteristics is to draw trend lines, which connect the historic levels, and which prevented a rate of climb or descend. These levels of support and resistance are used by technical operators to determine if the trend date, or lack of tendency, continues or not.
Generally, the major currency pairs such as EUR / USD, USD / JPY, USD / CHF and GBP / USD, show the peculiarities of the trend. Instead, the bilateral exchange rates of the currencies (pairs that do not include the US dollar) are currency pairs that historically were more likely to become range bound. The following two graphs show a strong trend for USD / JPY in contrast to the range-bound EUR / CHF. For every trader it is important to be aware of the trends and characteristics of the range, as they affect not only the currency pairs, but the strategy to be implemented.