Those tools are charts, support and resistance lines, Forex trading indicators, trendlines, chart patterns and so on.
This Forex trading for beginners guide will reveal all that you need to know how to analyze the market with technical tools.
Technical Analysis With Support and Resistance
When you start analyzing the market, support and resistance will be the first tool you will use. And that is because majority beginners in Forex trading learn that support and resistance level are important.
Support and resistance level helps you to define where the price will change direction or it will stop, stay there for a while and then continue moving in the same direction.
They represent a level where the price finds obstacles in the market that will change the direction of the currency pair price.
Those levels also represent where the buyers and sellers are waiting for the price. When the price comes to that level bears and bulls are pushing the price in the direction that helps them to make money.
There is a logic that can be explained for easier explanation why that is happening. And how the support and resistance helps in analyzing the market.
Read the following article where you will learn all about support and resistance levels in Forex.
Drawing Support and Resistance Levels as a Technical Tool
I remember when I started trading and I wanted to draw support and resistance levels on the chart. I have seen that they are horizontal, but it was not clear when is support and when is resistance.
And the biggest problem was to determine where to put those horizontal levels.
You will see that many say to put them on the highs and lows where the price changed the direction.
And when you see that on the chart you can say where those places are. But, with experience you will see that that is not always correct.
There are few points you need to pay attention to. Those are:
- did the price come from the upper side or lower side
- will you put the level next to which or next to close price
- if there are several wicks or candles close together, but with different price where should you put the level
And you can see that it is not easy. There are few more things you should pay attention to, like supply and demand zones, that will have an impact on the support and resistance levels.
I have prepared a separate article to explain in more detail how to draw support and resistance levels so take your time and read it.
Technical Analysis With Trend Lines
Trend lines are dynamic support and resistance level. And when you draw them paralel one to each other you will get a channel.
Trend lines represent support and resistance where the price created the trend which tells you in which direction the price will move.
And when the price comes to the trend line it will bounce from it. When it bounces it goes to the second trend line in the channel.
The trend lines are a great tool in technical analysis because when you combine them with horizontal support and resistance levels they become a powerful tool.
They are important tools in technical analysis so you should use them often.
As they are dynamic support and resistance levels they can move and become double trend lines on the same side of the channel. That is because the price does not always stay inside the channel and respects the trend lines.
You need to adapt to the markets and see what the price is doing and react based on that.
Drawing Trend Line in the Technical Analysis
To draw a trend line you need to use the trend line from the tool bar and connect at least two highs and two lows.
When you are drawing a resistance trend line then you need to connect two highs. And when drawing a support trend line you need to connect two lows.
When you connect two highs or two lows you get a line that represents the trend where the price is moving.
That can be upwards or downwards. You can see on the image below how that looks.
To draw a trend line you will need experience. And that will come with time. But at the start you need to learn the basics so you know how to draw them on the chart.
Check the following article and learn how to draw a trend line in a Forex trading platform.