Trading on the forex market is never an easy affair as it seems. Traders are first required to understand price changes: how prices move or rather their rise and fall. To competently do this – predict price movements – traders employ the use of technical analysis.

The belief behind this analysis is that price actions follow a set trend based on their previous behaviors. So a trader can use forex technical analysis to predict future price changes because historical events tend to recur. Put it another way, technical analysis is examining historical data of price movements on charts within a given timeframe.

What are the different forms of forex technical analysis?

They are many, and some often depend on a number of technical analysis methods while others on oscillators, chart patterns, and indicators. Without making use of technical indicators when trading, for instance, traders can’t adequately analyze the history of prices thus making poor investment decisions.

There are also different types of volume indicators, too, on various forex trading platforms. Often, traders will choose the best indicators to help them formulate a trading strategy based on the indicators findings. Traders are not limited to one indicator though. They’re at liberty to use different ones as well.

The most common form of forex technical analysis used by traders is the candlestick pattern. Price actions are indicated on chart patterns for traders to keep an eye on price movements. These price actions are then recorded using patterns (or figures that look like candlesticks).These candlestick figures (Hammer and Hanging Man) are what traders use to pinpoint price trends and patterns on a chart.

In other words, when the candlestick figures move on the graph traders have a clear view of future price actions. Traders are also able to deduce when a break occurs on the market while at it.

Two ways to approach forex technical analysis

Different forex market investors approach trading in different ways. For example, long-term traders will often lean on the bottom-up approach of forex technical analysis, while short-term traders stick to the top-down approach. Though these two approaches are diverse their core objective is similar: To help investors select the best price actions that guarantee an ideal investment.

The bottom-up approach of investing focuses on the details. For instance, a bottom-up investor on watching the news or studying the market about plummeted stocks of a company or a buyout will make investments (or decide to) based on the company’s credentials, numbers, and its market position.

Simply put, bottom-up investors don’t consider if the said company’s stocks are worth investing in instead they are moved by the economic circumstances of the company at the time.

On the flip side, the top-down investor will never make an investment in a company’s stock unless they study its inflation rates and other economic variables that may affect its future price actions, first. That’s why the top-down approach focuses on key economic details rather than ‘mere’ details.

As a forex trader, you must remember price movements rely on trends, and that history will always repeat itself. It is also crucial to deduce what technical analysis approaches to take, and find the best volume indicators that will influence your investment decisions.

Richard Agu is a researcher, entrepreneur and freelancer, passionate about entrepreneurship and self-development. Currently, Richard writes for Entrepreneur.com, Goodmenproject.com, among others. Follow him on Linkedin.com by clicking here now.