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Forex Trading Reviews & News 
By: Michal Hiller
Technical Analysis is a technique that was set up to help comprehend price movement. It does so by using market movement charts that are a reflection of historical fluctuations. It’s a price predicting method that is grounded in mathematical calculations rather than on economic reports, and was designed as a way for one to make profits on the stock and currency markets.
Up until the 1970s several techniques were used, but since that time these techniques have been merged into an integral approach with many of the same principles including ruling principles, psychology, and axioms.
Effective usage of technical analysis leads to several axioms
Axiom 1
Every factor with regards to price formation, such as political, economical, and psychological, has been taken into consideration. The outcome of this tabulation will be observed in the charts. As new information becomes available, market prices will react to it, and this will be reflected in the data.
Axiom 2
Price trends will help determine movement direction. This is a core principle of technical analysis theory as the idea is to follow up on acquired knowledge to better predict price movement. The main principle states that during bullish (upside movement) trends every peak and fall that follows will be greater than the previous one. The other two types of trends are bearish (downside movement), and sideway trading (price remains flat).
It’s a rare occurrence for the market to encounter these three types of trends in their truest forms due to the fact that rarely do straight price reactions occur. Often times it’s challenging to gauge whether a reversal of trends is unfolding, or whether we’re looking at something that only temporarily changes the trend’s movement.
Axiom 3
Human psychology plays a role in price formation, and analysts feel that rules that have held up in the past will also hold true for the future.
The core ideas that technical analysis is centered on are:
Everything will be taken into account with regards to rates, so it’s vital for one to gain expert knowledge of price charts. To be on top of new trends, to recognize the formation of trends, and to use knowledge of what you’ve learned properly is the goal. The last principle is that if something’s worked in the past it will likely also apply to the future.
Dow Theory takes into account movement fluctuations known as ‘main movement”, “medium swing”, and the “short swing”. While the “main movement” may last several years, the “medium movement” lasts anywhere from ten days to 3 months. The “short swing” usually lasts no more than three weeks.
Dow Theory’s definition of a trend is seen as a core principle by many technical analysts of our time. Dow Theory makes the assumption that volume is what confirms every price trend. In theory market moving averages have to acknowledge one another, and volume is what will determine every trend.
