Once these patterns or trends are identified they must be quantified in there ability to predict price moves in a particular direction. Once done, a trader can then look at the manner in which a currency's price is currently moving and compare this to similar past patterns to predict the future direction of movement.
So, while technical analysis still requires skill, experience, and judgment the fact that it is more automated and less subjective than the research involved in fundamental analysis contributes to it's popularity. The debate over which method is better will probably never be resolved, but most traders feel that technical analysis is easier to learn and master.
There are three underlying principles one must be familiar with to fully understand technical analysis.
First, there are many factors, such as political or economic events, that will produce price movement in a particular currency pair. However, these factors, or reasons, are not what's important to technical analysis, but rather the price movement itself.
Second, technical analysis assumes that pricing moves follow a trend that can be discerned by tracking the patterns that emerge over time in the market.
Finally, the trends and patterns that emerge from historical charting and analysis of price will also be reflected in future price action movements. This is because, in the view of the technical analyst, the trading psychology of humans remains for the most part constant over time. So market participants will react in similar fashion to similar news in the future the same as they have in the past.
This "wisdom of crowds" or at least the predictability of crowds is dismissed by followers of the fundamental analysis approach. They hold to their belief that a deep understanding of the factors that affect pricing and not a reliance on patterns is the only way to produce reliable long term results.
In spite what the fans of fundamental analysis say the majority of traders today rely almost entirely on a some form of technical analysis for trading currency.
No system, whether based on fundamental and technical analysis, can accurately predict price movements every time but a good technical trader who takes the time to learn a sound methodology can do quite well.
So, while technical analysis still requires skill, experience, and judgment the fact that it is more automated and less subjective than the research involved in fundamental analysis contributes to it's popularity. The debate over which method is better will probably never be resolved, but most traders feel that technical analysis is easier to learn and master.
There are three underlying principles one must be familiar with to fully understand technical analysis.
First, there are many factors, such as political or economic events, that will produce price movement in a particular currency pair. However, these factors, or reasons, are not what's important to technical analysis, but rather the price movement itself.
Second, technical analysis assumes that pricing moves follow a trend that can be discerned by tracking the patterns that emerge over time in the market.
Finally, the trends and patterns that emerge from historical charting and analysis of price will also be reflected in future price action movements. This is because, in the view of the technical analyst, the trading psychology of humans remains for the most part constant over time. So market participants will react in similar fashion to similar news in the future the same as they have in the past.
This "wisdom of crowds" or at least the predictability of crowds is dismissed by followers of the fundamental analysis approach. They hold to their belief that a deep understanding of the factors that affect pricing and not a reliance on patterns is the only way to produce reliable long term results.
In spite what the fans of fundamental analysis say the majority of traders today rely almost entirely on a some form of technical analysis for trading currency.
No system, whether based on fundamental and technical analysis, can accurately predict price movements every time but a good technical trader who takes the time to learn a sound methodology can do quite well.
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