Forex trading is the activity of trading in world currencies. When you engage in Forex trading, you are likely to encounter the term "Forex technical analysis".

To understand technical analysis, it helps to first understand the more commonly used Forex fundamental analysis. Forex Fundamental analysis refers to an analysis of the basic macroeconomic factors that have an impact upon the global market.

Forex technical analysis, on the other hand, is an analysis of a currency's past price history with the goal of locating a pattern that may predict future prices.

As you can well imagine, understanding both types of analyses plays a significant role in your success as a Forex trader.

Explaining Forex Technical Analysis

Forex traders work with currency pairs [http://www.nightcats.com/samples/forex.html#majors].

Suppose you examine a chart of one of the currency pair of EURUSD. You can see that over time, the prices have gone up and down. Can you identify any reason why these movements have occurred, or is it a complete puzzle to you?

Price movements do not occur through magic, although it may seem so to the newcomer. In reality, they movements are merely a logical reaction to the combined movements of all the market currencies. In the short term particularly, these movements are simply a reflection of market supply and demand. For the "now", the market and the traders working within it are the only factors that count.

In the long term, however, you cannot discount the effects of global macroeconomic factors

Technical analysis involves trying to determine is the price moves according to a predictable pattern. Can studying past movements give us information that allows us to make an accurate "guess" about future movements? On the one hand, its certainly a fact that no one can predict the future with total accuracy. We do know, though, that humans tend to repeat their behaviours and their reactions to certain occurrences. Knowing this, it may be possible to predict future movements in currency prices.

Charting

Another name for technical analysis is charting. Simply put, charting means creating graphs or graphical representations of price movements. The visualization of these patterns may help a trader make a prediction regarding future price changes.

Typically, a trading platform such as the popular Metatrader (MT4) contain a feature that allows you to use charts to do your technical analysis. Most trading platforms provide the trader with analytical tools and indicators to use. This could include such information as moving averages, momentum indicators and various others. There are many, many tools that you can use.

However, knowing how to use the tools correctly is the key factor to success. Each trader is likely to arrive at a somewhat different opinion following a technical analysis. Technical analysis may be likened more to an art than a science. You perform your analysis using the best tools at your disposal, but then you arrive at your own conclusions.

Comparison With Fundamental Analysis

As stated earlier, fundamental analysis is more suitable for long term analysis. In fundamental analysis, you examine the global macroeconomic picture and try to predict how it will affect global currencies over an extended period of time.

Which Should You Use?

Which type of analysis you use is based on your personal preference. You may like one type better than the other, or you may use both, depending on the situation.

For instance, a trader might conduct a fundamental analysis to identify trends and generate price predictions. However, when the time comes to place a trade, this same trader might perform a technical analysis to arrive at the best timing and the best price.

There are as many strategies as there are traders. This example is but one approach to utilizing the tools at your disposal.