Does Forex Technical Analysis Actually Work?

The principle behind technical analysis is that markets repeat themselves. Students of technical analysis follow the theory that particular market formations and trends can be identified within the market. These repeating market events are identified by the study of chart patterns and specific market indicators. The is the core principle behind technical analysis. That past events or conditions in the market will always play out in the same way in the future.

Technical analysis does therefore have no room for random events. This approach is very different from that taken by fundamental analysts.Fundamental analysts instead view the market as being constantly driven by economic news flow and data releases.Market news flow and economic releases are seen as the determinant of the markets price at any single point in time.

If technical analysis is said not to work then why do so many traders follow it?

Whether technical analysis actually works has long been a charge leveled at it. However by looking at historical data and studying charts it is evident that patterns and formations do repeat themselves. In fact it is obvious that they do this regularly. Therefore the question instead should be if technical analysis works frequently enough to profit rather than if it works at all.

It is widely excepted that technical analysis can work some of the time and this is why so many traders will generally follow some school of it. With many traders reacting to specific points in the market it is often said asserted that traders themselves help to make technical analysis a self fulfilling prophecy.

Trading Profitably With Forex Technical Analysis

A central consideration for a trader is whether the approach followed identifies sufficient repeatable opportunities to profit.The profits generated should also be sufficient in that they are able to make up for the losses from when the analysis is wrong.
There are several approaches under the ‘umbrella’ of technical analysis.Some of the most common technical methods followed include Elliot Wave theory, Candlestick charting and Fibonacci analysis. This helps to confirm the fact that no particular school of technical thought can be relied upon 100% of the time . If it did there would only be a need for one technical method.

Even though no single school of technical analysis is 100% accurate you can still use technical analysis to profit from your trading. By combining indicators you will be able to gain a greater validity to your trading method. This will help to increase the accuracy of your trade entries and increase the profitability of your Forex trading.

You can further increase your trade accuracy by combining market analysis approaches .For the best implementation of technical analysis it pays to also look out for fundamental events. In referencing both approaches you will be better able to make the best trading decisions and have a greater potential to profit from your trades.