Technical Analysis
The foreign exchange markets are extremely popular among practitioners of technical analysis. The large number and variety of foreign exchange market participants make it ideal for technical analysis.In particular, major price moves almost always involve significant trading volume and broad participation. Thus, false price breakouts and misleading trend reversals should not occur as often as in other markets. Additionally, the 24-hour nature of the market enables charts to be read without taking into account distorting price gaps that occur between trading sessions.
In addition to using economic data, foreign exchange traders utilize an array of technical analysis techniques to predict a currency's future movements on the basis of its past behavior. One major advantage technical analysis holds over other trading techniques is that it can be used with any financial instrument and over any time period-from a second to a day to a month.
In the chart we see the US Dollar beginning a 10-year bull run against the Canadian dollar, climbing from $1.10 to $1.65 Canadian. There were strong economic and policy reasons behind this long-term appreciation of the US dollar. But even if a technical trader was unaware of the causes, he could have identified the opportunity solely by looking at the price chart. Drawing a price support line, southwest to northeast, the client could have gauged the strength of that trend, and potentially could have determined the best time to enter (or exit) the market.
As we see from the price support line, the US dollar reached one new high after another, bouncing off higher and higher support levels until it reached $1.65 Canadian. Once it breached that long-term support line, the reversal was imminent, the downtrend began, and the US dollar ended the year losing 12% against the Canadian dollar.
Advanced Charting
dbFX offers a comprehensive variety of advanced charting packages for the currency trader. Provided free with a dbFX account, these charts provide an analysis tool to support your currency trading strategy.[Real-time charts are provided free with your dbFX account]
