Technical analysis is something that can help determine trading decisions in any market, and using these tools in the forex market can be effective for confirmation signals.

Technical analysis is the use of price data to try and determine the future direction of the market. Below you will see an overview of some of the most popular and effective technical analysis tools and strategies that have been proven to work over time.

Candlestick Bar Formations

One of the most popular modes of displaying price data is in candlestick chart format, and there are about one dozen relevant candlestick formations that a trader can learn that help to predict where the market is headed next.  These formations can act as a buy/sell confirmation when displayed in conjunction with other relevant data to justify the trade.


Moving Averages & MACD

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Once you have opened a charting program and are seeing the price data, one of the most obvious next steps would be overlaying a simple moving average over the price data to see when the current price differs drastically with the average level. One way to see buy/sell signals is to notice when the actual price is notably far away from the moving average line.

Another indicator called a MACD (acronym for Moving Average Convergence-Divergence) is a combination of long-term and short-term moving averages. Unlike a normal moving average, this indicator is displayed below actual price data and it gives buy/sell signals when the short-term moving average varies drastically from the long-term moving average.


Support and Resistance Levels

Locating support and resistance levels on your price chart is important because it shows you where the market has a tendency to reverse, and also where to place your stop-loss orders in order to assure the lowest probability of being stopped out of the market prematurely. Support and resistance are the price levels where the price touches this level and retraces, indicating that some traders do not want the price above or below this level.

When you know the relevant support or resistance level, you can set your stop-loss order 10 pips or so beyond that level so that if the market where ever to touch that level it would need to blow through an established support or resistance level first to get there, making it more likely that you will hit your profit target.