Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets CFDs, ETFs, Shares. Past performance is not necessarily an indication of future performance. Traders who choose Admiral Markets will be happy to know that they can trade absolutely without risk using a free demo account which also gives free access to the MetaTrader technical analysis software you can use as you read through this article.

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Take control of your trading experience, click the banner below to open your FREE demo account today! Technical analysis of the financial markets have existed for as long as there have been markets driven by supply and demand. The first known historical records are dated around the 17th century for Dutch merchants and the 18th century for Japanese rice traders.

At the end of the 19th century, technical analysis began to take off, as it was propelled into the trading masses by the founder and editor of The Wall Street Journal, Charles Dow. Among his contemporary compatriots were other technical pioneers, such as Ralph Nelson Elliot, the founder of the famous Elliot Wave Theory ; William Delbert Gann, the founder of the Gann Angle Theory; and Richard Demille Wyckoff, who was possibly the first market psychologist who theorised that the market, with all the historical data recorded, is best considered as a single mind and his teachings are still taught at some of the top universities in the US.

For most of the 20th century, and throughout history, technical analysis was limited to charting, as statistical computation of vast amounts of historic data was not possible. That meant that no technical analysis indicators were available. It also means that now, the digital era, can possibly be considered as the golden age of technical analysis and the right time to learn more about it.

What Makes a Great Technical Analysis Course?

Fundamental analysis is the study of economic data such as retail sales figures, inflation reports, employment data, etc or company news and earnings announcements to identify the trend of the market and possible turning points or changes in the direction of a particular market.

While fundamental analysis is still useful in some markets, like the stock market, technical analysis is now much more common.

One of the reasons technical analysis can work, is because more and more people are using it to aid in their trading decisions, making it even more effective than ever before. However, most traders will use a combination of technical analysis and fundamental analysis, as if both fields of study point to the same market move it is generally considered a high probability trading opportunity. In this section, we will look at some of the basic underlying principles of technical analysis which you should know. The logical framework of technical analysis derives itself from Dow theory , which claims that the current market price accurately reflects all the currently available relevant information.

Therefore, any factor which has an impact on supply or demand will inevitably be reflected in the chart. Researching, or even being aware of, the events outside of price action, is, therefore, mostly rendered useless as they may provide unreliable data. In another echo of Dow theory, proponents of technical analysis tend to favour the trend-like nature of the financial markets. Markets can move in uptrends, a bullish market that continuously creates higher highs and higher lows.

The opposite market behaviour, characterised by lower lows and lower highs, constitute a downtrend, or a bearish market. A horizontal trend is called a ranging market and is not a particularly desirable place for a trend-based trader to be.

This is due to the fact that during ranging periods, there is hardly any way to be certain about what will happen next. A ranging market means that the bulls and the bears are more or less equal in power. Neither side is strong enough to dominate the other for long enough to create a trend. Markets tend to range the majority of the time, which makes identifying trends extremely important. It is worth remembering that Forex technical analysis does not particularly concern itself with why things happen.

For example, you may wonder ' why do trends occur? To them, the existence of trends is simply an empirically proven fact. Technical analysts agree that investors and traders, as a whole, operate in patterns. Because of this behaviour, technicians believe that they are able to accurately identify patterns and make trades with a higher probability. All they need is a small statistical advantage, multiplied by repetitions and leverage. Whilst technical analysis of financial markets, such as Forex technical analysis, is popular in its own right, many traders use technical analysis in combination with fundamental analysis or sentiment analysis.

Technicians may excel and identifying and confirming trends, but it is the fundamental shifts that provide conditions for those trends to develop. Technical analysts use the method of Forex backtesting , also known as historical backtesting. This is a method utilised by traders that use historical data to test a trading strategy , which primarily relies on Forex technical analysis.

As with all statistical findings in any area of human activity, past data does not guarantee that the pattern or the probability will last.

It is only a tool. The most important thing is to get started and to learn by practice. As technical analysis is the study of price charts, the first step in getting started is finding the best technical analysis software. The MetaTrader suite of trading platforms is regarded by many as the best software the trading world has to offer. With Admiral Markets, both demo and live account holders, have free access to the following MetaTrader trading software:. Whilst users can access all this technical analysis software by opening a demo or live trading account, there are some differences between the different platforms.

For example, the MetaTrader 4 platform has been the go-to platform for Forex technical analysis traders for many years. The MetaTrader 5 platform offers traders the chance to use their technical analysis skills on a higher number of markets, such as stocks, indices and commodities. Both these platforms and WebTrader already have specific technical analysis tools in them, which we will cover in more detail later in the article.

MetaTrader 4 is an elite trading platform that offers traders a range of exclusive benefits such as multi-language support, advanced charting capabilities, automated trading, the ability to fully customise and change the platform to suit your individual trading preferences, free real-time charting, trading news, technical analysis and so much more! In the following sections, we will look at the four different types of technical analysis tools you can use to your advantage. We will then learn how to apply technical analysis for different markets such as Forex, Stocks, Indices, Commodities and Cryptocurrencies.

The four different types of technical analysis tools are:. It is recommended you download your MetaTrader platform, so that you can follow through on the technical analysis examples below. The first consideration on your path to becoming a technical analyst, is to decide which chart type to perform your technical analysis on.

Whether it is stock market or Forex technical analysis, the same chart type can be used across different markets. Chart types include line, bar and candlestick.

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Once you've downloaded your MetaTrader technical analysis software, you can switch between these different chart types by right clicking on an open chart and selecting from the three different options. Date Range: 21 May - 3 September A line chart simply connects the closing prices of the timeframe you are viewing.

What is Technical Analysis?

For example, when viewing a daily chart the line will connect the closing price of each trading day. Whether you are employing stock market or Forex technical analysis, traders mainly use line charts to identify long-term trends as it is the most basic type of chart available. For example, when looking at the daily chart, each vertical bar represents one trading day.



The bar chart presents much more information than the line chart. It shows us the open, high, low and close price values of the specific timeframe. Charts such as the OHLC bar chart help technical analysts identify whether buyers or sellers are in control of the market.



Candlestick charts were first used by Japanese rice traders in the 18th century and they are the most popular type of chart for Forex technical analysis. Similar to OHLC bars, candles also show the open, high, low and close values of a chosen time period. The major difference is that the candles have a box between the open and close price values known as the 'body' of the candle which is coloured in, usually either red or green.

Here, red indicates that the close price is lower than the open price, with green indicating the opposite. Many traders find candlesticks charts the most visually appealing, which is one of the reasons they are so popular in Forex technical analysis. The MetaTrader trading software comes with a wide variety of technical analysis tools, that can be used to help identify chart patterns.

They include drawing tools such as:. These can be found by selecting 'Insert' in the top menu, then 'Objects'. For example, let's take the popular technical analysis tool, the Equidistant Channel, which can be accessed as shown below:. Once this tool is selected, the user simply needs to connect the swing highs, or swings lows, of a price to draw in their channel pattern. This can be done by:. In the example below, you can see an ascending channel pattern and a sideways channel pattern, highlighted using this technical analysis tool.

Date Range: 8 March - 3 September There are many types of different chart patterns used by traders in their technical analysis.

Sometimes what is best depends on the market being traded, for example, some chart patterns work better with Forex technical analysis, whilst others may be preferable for stock market technical analysis. This will be covered in more detail later in the article. When it comes to candlestick charts, there are many different patterns which are used by traders in their technical analysis.