Using Technical Analysis

Technical analysis looks at the historical price movements of a currency. Technical analysis believes all that needs to be known about a currency can be seen by tracking its historical price, and from that historical data you can spot trends and predict future price movements.
That's very different from fundamental analysts, who look at economic data and other key changes that impact a currency's value to try to predict future price movements.

Charts used for technical analysis in Forex trading are like a road map to the historical price movement of a currency. If you took statistics when you were in college, these charts would be known as times series plots.

On the y-axis, you will find the price scale and on the x-axis, you will find the time scale. Historical prices for the currency are plotted from left to right across the x-axis, with the most recent price shown on the point furthest to the right.

You can pick the time periods you want shown on the chart. This chart was set up in one-hour price points, which means each point on the chart represents one hour of trading. Your charting software, which is included with most trading packages, can be set with many different intervals.
When you set the time periods, it compresses the data. A tick chart would be the least compressed and a monthly chart would be the most compressed. For example, you may want to see the data intraday, daily, weekly, or monthly. The less compressed the data, the more detail you will see.

When you pick an interval, the points shown on the table will represent price points during that trading interval. Intervals included on most currency charting software include tick, 1-minute, 5-minute, 10-minute, 15-minute, 20-minute, 25-minute, 30-minute, 35-minute, 40-minute, 45-minute, 50-minute, 55-minute, 1-hour, 2-hour, 4-hour, daily, weekly and monthly.

Currency traders usually concentrate on charts that show intraday data to forecast short-term price movements. Remember the shorter the time frame, the less compressed the data will be. That's when you can see the most detail.

But short-term charts can be volatile and contain a lot of noise, such as sudden price movements and wide high-low ranges, which can distort the overall picture. One-hour time periods like in the previous figure the most commonly used by Forex traders to pick up intraday trends.

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