Introduction to Technical Analysis in Forex

Technical analysis is the study of historical price data to identify patterns and predict future price movements. It is based on the premise that all known information is already reflected in the current price.

Reading Price Charts

Candlestick Charts

Each candlestick represents four data points for a given period:

**Open** — the starting price

**High** — the highest price reached

**Low** — the lowest price reached

**Close** — the ending price

A green/white candle means the close was higher than the open (bullish). A red/black candle means the close was lower than the open (bearish).

Common Chart Patterns

**Doji** — open and close are equal or nearly equal, indicates indecision

**Hammer** — bullish reversal pattern with a small body and long lower wick

**Engulfing** — a larger candle that completely engulfs the previous smaller candle

Support and Resistance

Support is a price level where buying interest is strong enough to prevent further decline. Resistance is a level where selling pressure prevents further rise.

Key principles:

When price breaks through support, that support becomes resistance

When price breaks through resistance, that resistance becomes support

The more times a level is tested, the more significant it becomes

Trend Lines

An uptrend connects higher swing lows; a downtrend connects lower swing highs. A valid trend line requires at least two touch points, with the third confirming the trend.

Moving Averages

Moving averages smooth price data to identify trend direction:

| Type | Description |

|------|-------------|

| SMA (Simple) | Equal weight to all periods |

| EMA (Exponential) | More weight to recent prices, faster response |

Common settings:

**50 MA** — medium-term trend filter

**200 MA** — long-term trend identification

Momentum Indicators

RSI (Relative Strength Index)

Measures the speed and change of price movements on a 0-100 scale:

RSI above 70: overbought (potential reversal)

RSI below 30: oversold (potential bounce)

MACD (Moving Average Convergence Divergence)

Uses two EMAs and a signal line:

MACD crossing above signal line: bullish

MACD crossing below signal line: bearish

Technical Analysis Best Practices

Use multiple timeframes — identify trend on daily, enter on 4-hour

Combine indicators — confirm signals with 2-3 different tools

Always use risk management — technical analysis is probabilistic, not certain