Here's the Easy Way to Make Money With Forex Training Even If You're a Beginner

Forex trading has become one of the hottest growing online business ideas that people become involved. As people discover the large earnings potential of currency trading, the currency markets keep growing.

Just like trading in stocks, in the forex markets you want to buy when it's low and sell when it's high. Here, naturally, you're trading currencies and not company shares. Just like shares, the value of a currency rises and decreases. If you buy a cheap foreign currency - let's say at 58 cents for every unit - and later sell it when the price has increased, you will make some cash. That's how forex trading operates.

Obviously, this doesn't appear to be all that difficult. And it's not, in principle. But there are many things to keep in mind if you wish to earn money through currency trading. One of the immediate things you'll find out is that there are tons of currency types - it's not realistic to follow each of them. Professional traders will focus on just a couple. Of course the million dollar question is, how can you understand when is the appropriate time to purchase or sell?

Thankfully, a quality forex trading computer program will help increase your earnings. These computer programs are programmed by pro currency traders and computer wizards and can monitor the forex markets on their own. The software not only will detect the currencies with the largest money making potential, but it will also analyze trending data to determine just when is the best time to purchase or sell.

And don't worry about these computer programs being hard to utilize - they are very easy to use. They will usually have a demo mode that takes you through the features as you are learning the software. This is important, as you don't want to risk cash through trades while you are still learning to use the program.

It's a wise idea is to seek out a money back promise. When a company believes in their software and knows that it does what it promises, they won't have any issue in offering a promise. The guarantee will let you use the program to make sure you are content with the way it operates.

Obviously it's normal to be a bit timid to jump into the currency markets if you're a beginner. That's exactly why a currency trading program can be so powerful. You can rely on the program to help you make some money as you learn more about the currency markets.

As traders get more educated, they may branch out on their own a bit. But it's still wise to use a currency trading program even once you are beyond the newbie phase. Using a trading program will bring you in extra cash, and it also helps in educating you about the markets.

Using a forex trading program gives you a quick way to profit from the forex markets, especially if you are just learning about the markets

Top 10 currency traders

British Pound to Fall as Data Signals Deepening Recession

Written by Ilya Spivak, Currency Analyst

The British Pound faces substantial downside risks next week as a heavy dollop of negative economic data points to ever-deepening recession.

Fundamental Outlook for British Pound: Bearish

- UK Jobless Claims Rise by Most on Record
- Bank of England Unanimous On Quantitative Easing
- UK House Prices Fall at Record Pace for Second Month in March

The British Pound faces substantial downside risks next week as a heavy dollop of negative economic data points to ever-deepening recession. Last week, we saw sterling come under substantial selling pressure after Jobless Claims jumped much more than expected and the Claimant Count ticked to 4.3% (versus forecasts of 4.0%) in February. Next week’s Retail Sales is very much a part of the same picture: as companies trim jobs, disposable incomes dwindle and consumer spending falters. Expectations call for receipts to add 2.5% in the year to February, down from 3.6% in the preceding month. Private consumption is the largest component of overall economic growth, so weakness here bodes ill for Britain’s ability to climb out of the current downturn. Indeed, the IMF has predicted that this time around the UK will see the worst recession among the G7 nations.

Anemic economic growth is set to bring inflation lower, with growth in consumer prices expected to slow to just 2.6% in the year to February, the lowest in 11 months. Minutes from the last meeting of the Bank of England revealed that policymakers voted unanimously to cut interest rates by 50 basis points and begin quantitative easing, committing to spend 75 billion pounds to buy government bonds fearing that price growth may slip well below the 2% target rate this year. The week aptly closes with the release of the final revision of fourth-quarter GDP figures, with that release set to confirm that the economy shred a whopping 1.5% in the three months to December 2008, the worst in nearly three decades.

The US Dollar Index is showing signs of bouncing higher having found support at a rising trend line established from the lows set last July, hinting that feverish selling of the greenback may have run its course and will not be propping up GBPUSD for much longer. This opens the door for sterling to bear the full brunt of rapidly deteriorating data, suggesting the bears will be out in force in the near-term.

US Dollar Losing Its Economic, Safety And Reserve Advantages

Written by John Kicklighter, Currency Strategist

The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years.

US Dollar Losing Its Economic, Safety And Reserve Advantages

Fundamental Outlook for US Dollar: Bearish

- UN panel and Russia prepared to recommend abandoning the dollar as the world’s reserve currency
- Fed holds rates, announces quantitative easing and a sizable increase to MBS purchases
- Industrial production runs its worst slump since 1975 suggesting the worst of the recession has yet to be seen

The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years. And, though the retracement of the past two weeks has unwound a significant share of the previous eight months’ of bullish trending; the pull back may not stop there. As fear settles and global policy officials attempt to stabilize the financial and economic crises, the market will grow increasingly critical of the stalwart dollar. With a clear field of view, traders will take weight of the United States position in the recession curve; the unit’s status as a safe haven; and more importantly, its role as the world’s reserve currency.

Of these three critical themes, the threat to the dollar’s standing as the world’s primary store of wealth is the most elemental. One of the primary reasons (aside from being backed by the largest economy in the world) the greenback has dominated as the world’s most liquid and actively traded currency is the fact that nearly ever central bank and financial player transacts through it. With this standardization, the dollar lines reserves, is used to purchase commodities and is used as a benchmark for currency pegs among other things. This is why suggestions that the Commission of Experts on International Financial Reform panel will recommend to the UN that the dollar be abandoned as the world’s currency reserve carry’s so incendiary. This is not the first time an official or group has called for such a move; but the argument has not been made under the level of stress the markets are currently experience. With so many ‘too-big-to-fail’ market structures and participants having succumbed to this crisis, there is little reason why such an out-dated norm will not be reconsidered. In fact, the argument for a basket of currencies taking the place of sole dollar is so persuasive that the topic will also come up at the G-20 summit on April 2nd – where anything official will likely take place.

In the meantime, fundamental traders will focus their attentions on the greenback’s fading appeal as a key safe haven currency. It was the height of the panic back in October that really cemented the currency’s place as a harbor for the world’s money. Fear left investors with one concern; and that was capital preservation. Offering the deepest pool of liquidity and the backing of the world’s largest government, US Treasuries (and by proxy, the dollar) was bought at a furious pace. However, in the months that have past, the market has cooled off. Traders and money managers are still worried about protecting their funds; but they are doing so with a mind for potential return and the long-term viability of their investments. Over the past weeks, the US has had to inflate its balance sheet, take up the reins of quantitative easing, take over two corporate credit unions and battle a deepening recession. This is not the laundry list of a safe, long-term investment.

And, when these two major market dynamics are not in play, dollar traders will fall back on the now-ubiquitous recession contest. Negative growth is universal problem; but there are nonetheless leaders and laggards in this race. After the first, aggressive round of policy action from US officials, market participants were ready to believe that the US was perhaps ahead of the recession curve. However, as the economy nears depression levels and promising alternatives emerged (like Australia), this notion began to fade. This is where next week’s docket comes into play. Final GDP, recent consumer spending and housing data will all add to the debate. - JK

Forex – The Only True Global Market.

Trading, whether it is stocks, commodities, or derivatives (like futures and options) can be a very lucrative business to be in.
With the decision to become a trader, you must also choose what type of market you will focus on and what instruments you will trade. Will it be shares of publicly traded companies, commodity future contracts like oil and gold, or currencies.
Most of the financial markets that exist in the world today are within the framework of a central exchange, and for that reason they are limited in their scope and daily trading volume. Every market except one, which is the foreign exchange currency market.
The foreign exchange (forex) market has no central exchange, and instead it exists only as a highly interconnected web of bank servers and individual brokers. The 'over the counter' type of trading tends to be much larger in scope than trading centered around a central exchange (such as the NYSE), and for the reason the forex market is hands down the largest financial market in the world with daily volume surpassing $2 Trillion USD.
The forex market is the only true global market that exists, as it is not based in one specific country and instead is created by the perpetual buying and selling of banks and financial institutions in every major city, 24 hours per day.
Unlike traditional exchange-based markets which have set times that they are open and closed, the forex market literally follows the span of daylight around the planet.
When you are a forex trader you need to be familiar with the term 'global trading day.' The global trading day begins with the London market open hours (about 3AM New York time) and continues across all the major cities and time zones.
There are three distinct times throughout the global trading day when there is the most trading activity (and consequently the most liquidity). These times are based around the open-hours of the three major cities in the world where the largest volume of forex activity takes place: London, New York, and Tokyo.
So what does this mean for you, the trader? Because the forex is a global market and there are no set open and closed times, it is possible to trade at any time during the day (except on weekends).
It also means that due to the level of daily trading volume, this market is very liquid and it is virtually impossible to get 'stuck' with an open position.
Because of these lucrative trading features, many firms and brokers have sprung up to cater to the large demand of forex market access. Many of these companies offer highly advanced trading platforms that feature very low commission trading and seamless market entry/exit.
All in all, forex trading is by far one of the coolest ways around to make money today, since all you really need is a broadband-enabled laptop and a funded trading account to make money from anywhere in the world.

Forecasting in the Forex Trading Market

Forex, also known as the foreign exchange market is the busiest financial market that boasts of over $1.5 trillion worth dealings in a day. Although this market has no physical location, it operates efficiently through an extensive network of banks and corporations. The Forex market is far more volatile than the traditional market and relies heavily on speculation. Forex currency trading can be very lucrative for those who understand the importance of "timing a trade" and are willing to stake long hours in research and market study. As a Forex trader, you should be able to forecast Forex trends for successful trading. Forecasting is one of the most crucial aspects of Forex trading and if you are able to predict market trends well, you can save yourself from financial disasters. For forecasting Forex trends successfully, you need to look into various details such as historical trends, past performances, and market movements.

Financial experts depend on technical and fundamental analysis to study current trends and predict future trends. Existing data and facts can be used to forecast the movement of the economy and the stock market and how this would impact individual securities. Financial analysts apply several methods to forecast the foreign currency market that include the most popular methods namely, technical analysis and fundamental analysis. These methods are commonly used to understand how the foreign currency exchange market operates and how even the slightest fluctuations influence currency rates and subsequently the whole currency trade. Both these methods are entirely different from one another but serve one common purpose – Forecasting Forex trade. As you understand how technical and fundamental analysis can help in forecasting, you will be able to combine the two for better forecast and more lucrative trade.

Technical analysis relies on past performances that are indicated through charts and graphs compiled on the basis of past Forex market movements. These movements are nothing but major events that occurred in the past and how they affected the currency rates. Experienced Forex traders and brokers greatly depend on technical analysis, as it is drawn from actual figures and trends in the Forex market. For effective technical analysis, you need to understand how past performances, current events, and changing currency prices influence the market action and therefore need to take into account the supply and demand as well. Financial experts believe that the price movements generally repeat in a particular pattern over a period of time. As a Forex trader, you need to study and understand these patterns well in order to forecast successfully. When looking at the past performances for technical analysis, you must divide your study into five main categories namely; number theory, indicators, gaps, waves, and trends.

Fundamental analysis is another important method for forecasting in the Forex market and forecast is based on events that have not yet occurred. You can forecast price movements by taking into account number of factors that include environmental factors, political changes and natural disasters. These factors greatly affect supply and demand in the market and eventually influence price of currency. Although the fundamental approach is quite effective, it cannot rely on it alone to predict in the Forex market. Experts combine this analysis with technical analysis to predict accurately and expect changes in the currency exchange trade.

If you are keen on investing your money in the Forex market, a basic understanding of how the Forex currency trading system functions is crucial. This will help you to predict which direction the currency trends will move and how you can use this information to maximize profits. If you are not familiar with the way the Forex market operates, you may consult with an expert Forex broker who can take off the burden and advise you about Forex trading and planning entries and exits effectively.

WORLD FOREX: Dollar Makes Comeback After Two Days Of Losses

By Dan Molinski

OF DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The dollar is rebounding early Friday in New York after two days of losses that were sparked by the Federal Reserve's aggressive plan to inject liquidity into the system and revive the economy.

The euro dipped to as low as $1.3538 Friday, down from a 10-week high of $1.3739 reached Thursday. Against the yen, the dollar is also performing well, reaching as high as Y95.72 after hitting a nearly one-month low of Y93.55 Thursday.

But analysts chalk up the dollar's gains Friday mostly to profit-taking and say further dollar weakness is expected over the coming days, mostly as a result of the Fed's liquidity-injection efforts. The U.S. central bank noted plans Wednesday pumping up to $1.15 trillion into the system through the purchase of $300 billion in long-term Treasury bonds during the next six months, and other measures.

That announcement sparked a temporary rally in U.S. stock markets, which drove investors away from the dollar, which has been sought out for months as a safe haven. But the stock market rally hasn't persisted and that's helping to give the dollar support again.

There is no major U.S. economic data out Friday, but traders are likely to keep their eye on comments by Fed Chairman Ben Bernanke, who's set to speak about the financial crisis around noon EDT in Phoenix.

Friday morning in New York, the euro was at $1.3597 from $1.3678 late Thursday, and the dollar was at Y95.58 from Y94.41, according to EBS. The euro was at Y129.92 from Y129.14. The U.K. pound was at $1.4446 from $1.4518. The dollar was at CHF1.1248 from CHF1.1228 Thursday.

Meantime, the Canadian dollar is slightly higher early Friday, drawing some strength from the recent resurgence in oil and other commodity prices, but otherwise remaining subject to broader U.S. dollar moves and wavering levels of risk aversion as reflected in equity market developments.

The Canadian currency showed little response to news of a surprise 1.9% jump in Canadian retail sales in January, and is generally seen as headed for a period of consolidation after its recent sharp upward move.

Currency strategist Jacqui Douglas of TD Securities in Toronto said that the U.S.-Canada dollar pair is currently trying "to find some stable footing within the newly established C$1.2200-C$1.2600 range."

Early Friday, the dollar is at C$1.2347, from C$1.2373 late Thursday.

Forex markets punishing the printers

The US Federal Reserve last night resorted to pumping money into the system because it cannot drop interest rates any further - they're effectively at 0%.

While this shows the bank still has a role in influencing the economy, there are also ominous signs that global markets are increasingly edgy about funding the world's biggest economy.

The Fed will buy a massive $US300 billion ($440 billion) worth of US Treasury bonds over the next six months and another US$750 billion of mortgage-backed securities - the toxic assets at the root of the credit crunch.

A debate raging between analysts over whether the move amounts to printing money quickly gets technical, but it is clearly a response to rapidly declining economy and employment levels.

Stock markets rallied on the news, seeing it as another means of stimulating the US economy, but the reaction in currency markets was telling. The US dollar and the pound both sank, while Australia's dollar briefly jumped over 68 US cents and the Euro surged.

The chief economist at Nomura, Stephen Roberts, said currency investors were "punishing the printers'' and favouring the countries like Australia and Europe where such desperate measures are less likely.

Mr Roberts said one reason for the Fed's move was to reassure the countries that hold most of of US debt - big exporters such as Japan, China, and energy-rich nations in the Middle East.

In recent years these savers have posted massive current account surpluses, with which they funded countries that live beyond their means such as Australia and the US.

But with their exports fading, these surpluses have shrank from $US120 billion in September to $US80 billion at the start of this year.

Figures compiled by Westpac also show the currency reserves of these "savings gluttons'' are shrinking.

Growth in foreign exchange reserves tripled from $US300 billion a week in August 2003 to a peak of $US900 billion a week in 2007, but with global trade dropping it is now shrinking by $US300 billion a week, the figures show.

In the boom years this cash became a new force on financial markets - bundled in vehicles such as sovereign wealth funds and flowing into asset classes like commodities. But now this source of funding is dwindling.

"There's a lot less money searching for a home,'' said a senior currency strategist at Westpac, Sean Callow.

There are also signs the saving nations' spare cash could continue shrinking as trade slows further.

The Commonwealth Bank's chief currency strategist, Richard Grace, said forex markets might have over-reacted, but the Fed's move suggested it overlooked recent upbeat signs in favour of negative figures.

"In my view they've probably used the last quiver in their bow a bit too early.''

US imports are 16% below their levels of a year ago, but economists say this could easily slump to 30% in the coming months, further eroding the reserves position of savings countries.

A possible consequence is that countries dependent on offshore capital - such as Australia, which has imported its capital in nine of every ten years since Federation - could face further shortages of funds.

Forex Markets Stall to Digest US Dollar Sell off in Asian Trading (Euro Open)

Previous Articles

• Mar 20 - Gold Prices Regain Correlation with US Dollar Following Fed Actions
• Mar 20 - Euro Pares Gains As Industrial Production Falls To Record Low
• Mar 20 - Forex Markets Stall to Digest US Dollar Selloff in Asian Trading (Euro Open)
• Mar 19 - Dollar Hit Hard After Fed Announcement of Quantitative Easing
• Mar 19 - Euro, British Pound Surge Against US Dollar, but Former Remains Stronger on UK's Quantitative Easing
• Mar 19 - Fed Keeps Rates Unchanged but FOMC Statement Triggers a Dollar Sell-Off
• Mar 19 - Pound, Euro Continue To Find Support Post Fed Quantitative Easing Announcement
• Mar 19 - Euro, British Pound Consolidate Gains After Dovish FOMC Sparks Rally (Euro Open)
• Mar 18 - US Dollar Plummets with Treasury Yields as Fed Announces Quantitative Easing Measures
• Mar 16 - Canadian Dollar Could See Further Volatility on Friday
• Mar 18 - British Pound Heavy As Jobless Claims Rise by Record Amount, BoE Unanimous On Quantitative Easing.
• Mar 18 - British Pound Stands Still as Traders Brace for Bank of England Minutes (Euro Open)
• Mar 17 - US Dollar Falls on Improved Risk Appetite - Fed Announcement Could Impact FX Trade on Wednesday
• Mar 17 - Euro Finds Support After Unexpected Increase in Investor Sentiment
• Mar 17 - Euro Rally Threatened with Investor Confidence to See First Drop in Four Months (Euro Open)
• Mar 16 - Euro Rallies On Increase in Inflation, Will ECB End Current Easing Policy?
• Mar 16 - US Dollar Lower as Stocks Rally in Asia, Higher CPI Not Good News for Euro Zone
• Mar 13 - Finance Ministers And Central Bankers Are Running Out Of Time To Revive Growth And Sentiment
• Mar 13 - US Dollar Ends Friday Modestly Lower as US Import Prices Fall By Record, Consumer Confidence Rises
• Mar 13 - US Dollar Index Holds Below Key Resistance, Signals Further Declines

Written by Ilya Spivak, Currency Analyst

Forex price action consolidated in overnight trading after US Dollar selling accelerated in US hours, set off at the open of stateside bond markets as traders reacted to the first leg of the Fed’s purchase of $300 billion in Treasuries to bring down medium- to long-term borrowing costs. German Producer Prices top the calendar in European hours.

Key Overnight Developments

• Euro Stalls, British Pound Lower Against US Dollar in Overnight Trading
• Asian Stocks, US Index Futures Lower Ahead of European Market Open

Critical Levels

The Euro consolidated NY-session gains in overnight trading, oscillating around the 1.3650 level. The British Pound inched lower, losing its grip on the 1.45 mark to shed as much as -0.5% against the US Dollar.

Asia Session Highlights

With no market-moving data on the economic calendar, traders saw forex price action consolidating in overnight trading. The New York session was marked by a sharp US Dollar sell off starting at the open of American bond markets as traders reacted to the first leg of the Fed’s purchase of $300 billion in Treasuries to bring down medium- to long-term borrowing costs. Asian stock exchanges pulled back after seeing the biggest weekly gain since August 2007, with the MSCI Asia Pacific Index slipping -0.9% on profit-taking. US equity index futures are down close to 1%.


Euro Session: What to Expect

Germany’s Producer Prices are set to shrink -0.2% in February, bringing the annual pace of wholesale inflation to a 14-month low at 1.3%. Although the release would typically suggest further downward pressure on consumer prices as manufacturers pass on lower production costs through cheaper finished goods, we saw annual German inflation rebound to 1.0% in February from a 5-year low at 0.9% in the preceding month. The broader Euro Zone consumer price index also inched higher to 1.2% in the year to February, issuing the fist uptick since price growth peaked at 4% in July 2008.

Indicators measuring business and consumer sentiment extended months of losses to set new all-time lows in the same period, so it seems unlikely that this inflation will be of the benign variety that comes with renewing vigor in economic activity. Rather, currency depreciation may be the reason headline inflation is creeping higher. On average, the Euro has fallen -15.6% through February against the currencies of the regional bloc’s top five import partners since peaking in mid-July, raising the cost of foreign-made goods for consumers on the continent. The implications of this trend could be quite ominous considering the pace of price growth is rising even as the economy sinks deeper into recession, limiting the ability of the European Central Bank stimulate growth through monetary policy for fear of letting price growth skyrocket. Where some countries are worried about deflation (falling prices), it seems the Euro Zone could see stagflation (rising prices and falling output) as a real threat in the near term.

Technical Analysis

Technical analysis is a security analysis technique that claims the ability to forecast the future direction of prices through the study of past market data, primarily price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument. Technical analysts, sometimes called "chartists", may employ models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns.
Technical analysis stands in distinction to fundamental analysis. Technical analysis "ignores" the actual nature of the company, market, currency or commodity and is based solely on "the charts," that is to say price and volume information, whereas fundamental analysis does look at the actual facts of the company, market, currency or commodity. For example, any large brokerage, trading group, or financial institution will typically have both a technical analysis and fundamental analysis team.
Technical analysis is widely used among traders and financial professionals, and is very often used by active day traders, market makers, and pit traders. In the 1960s and 1970s it was widely discredited by academic mathematics. In a recent review, Irwin and Park reported that 56 of 95 modern studies found it produces positive results, but noted that many of the positive results were rendered dubious by issues such as data snooping so that the evidence in support of technical analysis was inconclusive; it is still considered by many academics to be pseudoscience. Academics such as Eugene Fama say the evidence for technical analysis is sparse and is inconsistent with the weak form of the efficient market hypothesis. Users hold that even if technical analysis cannot predict the future, it helps to identify trading opportunities.
In the foreign exchange markets, its use may be more widespread than fundamental analysis. While some isolated studies have indicated that technical trading rules might lead to consistent returns in the period prior to 1987, most academic work has focused on the nature of the anomalous position of the foreign exchange market It is speculated that this anomaly is due to central bank intervention.[

GENERAL DESCRIPTION:

Technical analysts (or technicians) seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price charts is primary.
Technicians especially search for archetypal patterns, such as the well-known head and shoulders or double top reversal patterns, study indicators such as moving averages, and look for forms such as lines of support, resistance, channels, and more obscure formations such as flags, pennants or balance days.
Critics argue that these 'patterns' are simply random effects on which humans impose causation. Critics state that humans see patterns that aren't there and then ascribe value to them.
Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume. These indicators are used to help determine whether an asset is trending, and if it is, its price direction. Technicians also look for relationships between price, volume and, in the case of futures, open interest. Examples include the relative strength index, and MACD. Other avenues of study include correlations between changes in options (implied volatility) and put/call ratios with price. Other technicians include sentiment indicators, such as Put/Call ratios and Implied Volatility in their analysis.
Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management.
There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school. Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be.
Technical analysis is frequently contrasted with fundamental analysis, the study of economic factors that influence prices in financial markets. Technical analysis holds that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.

HISTORY:

The principles of technical analysis derive from the observation of financial markets over hundreds of years. The oldest known example of technical analysis was a method developed by Homma Munehisa during early 18th century which evolved into the use of candlestick techniques, and is today a main charting tool.
Dow Theory is based on the collected writings of Dow Jones co-founder and editor Charles Dow, and inspired the use and development of modern technical analysis from the end of the 19th century. Other pioneers of analysis techniques include Ralph Nelson Elliott and William Delbert Gann who developed their respective techniques in the early 20th century.
Many more technical tools and theories have been developed and enhanced in recent decades, with an increasing emphasis on computer-assisted techniques.

PRINCIPLES :

Technicians say that a market's price reflects all relevant information, so their analysis looks more at "internals" than at "externals" such as news events. Price action also tends to repeat itself because investors collectively tend toward patterned behavior – hence technicians' focus on identifiable trends and conditions.

Market Action Discounts Everything :

Based on the premise that all relevant information is already reflected by prices, pure technical analysts believe it is redundant to do fundamental analysis – they say news and news events do not significantly influence price, and cite supporting research such as the study by Cutler, Poterba, and Summers titled "What Moves Stock Prices?"
On most of the sizable return days [large market moves]...the information that the press cites as the cause of the market move is not particularly important. Press reports on adjacent days also fail to reveal any convincing accounts of why future profits or discount rates might have changed. Our inability to identify the fundamental shocks that accounted for these significant market moves is difficult to reconcile with the view that such shocks account for most of the variation in stock returns.

Prices Move In Trends :

Technical analysts believe that prices trend. Technicians say that markets trend up, down, or sideways (flat). This basic definition of price trends is the one put forward by Dow Theory.
An example of a security that had an apparent trend is AOL from November 2001 through August 2002. A technical analyst or trend follower recognizing this trend would look for opportunities to sell this security. AOL consistently moves downward in price. Each time the stock rose, sellers would enter the market and sell the stock; hence the "zig-zag" movement in the price. The series of "lower highs" and "lower lows" is a tell tale sign of a stock in a down trend. In other words, each time the stock edged lower, it fell below its previous relative low price. Each time the stock moved higher, it could not reach the level of its previous relative high price.
Note that the sequence of lower lows and lower highs did not begin until August. Then AOL makes a low price that doesn't pierce the relative low set earlier in the month. Later in the same month, the stock makes a relative high equal to the most recent relative high. In this a technician sees strong indications that the down trend is at least pausing and possibly ending, and would likely stop actively selling the stock at that point.

History Tends To Repeat Itself :

Technical analysts believe that investors collectively repeat the behavior of the investors that preceded them. "Everyone wants in on the next Microsoft," "If this stock ever gets to $50 again, I will buy it," "This company's technology will revolutionize its industry, therefore this stock will skyrocket" – these are all examples of investor sentiment repeating itself. To a technician, the emotions in the market may be irrational, but they exist. Because investor behavior repeats itself so often, technicians believe that recognizable (and predictable) price patterns will develop on a chart.
Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment. These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish. Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse – the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors are bullish and invested, one assumes that few buyers remain. This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarian trading.

INDUSTRY

Globally, the industry is represented by The International Federation of Technical Analysts (IFTA). In the United States the industry is represented by two national organizations: the Market Technicians Association (MTA), and the American Association of Professional Technical Analysts (AAPTA). In Canada the industry is represented by the Canadian Society of Technical Analysts.


USE

Many traders say that trading in the direction of the trend is the most effective means to be profitable in financial or commodities markets. John W. Henry, Larry Hite, Ed Seykota, Richard Dennis, William Eckhardt, Victor Sperandeo, Michael Marcus and Paul Tudor Jones (some of the so-called Market Wizards in the popular book of the same name by Jack D. Schwager) have each amassed massive fortunes via the use of technical analysis and its concepts. George Lane, a technical analyst, coined one of the most popular phrases on Wall Street, "The trend is your friend!"
Many non-arbitrage algorithmic trading systems rely on the idea of trend-following, as do many hedge funds. A relatively recent trend, both in research and industrial practice, has been the development of increasingly sophisticated automated trading strategies. These often rely on underlying technical analysis principles .

SYSTEMATIC TRADING

NEUTRAL NETWORKS

Since the early 1990s when the first practically usable types emerged, artificial neural networks (ANNs) have rapidly grown in popularity. They are artificial intelligence adaptive software systems that have been inspired by how biological neural networks work. They are used because they can learn to detect complex patterns in data. In mathematical terms, they are universal function approximators, meaning that given the right data and configured correctly; they can capture and model any input-output relationships. This not only removes the need for human interpretation of charts or the series of rules for generating entry/exit signals, but also provides a bridge to fundamental analysis, as the variables used in fundamental analysis can be used as input.
As ANNs are essentially non-linear statistical models, their accuracy and prediction capabilities can be both mathematically and empirically tested. In various studies, authors have claimed that neural networks used for generating trading signals given various technical and fundamental inputs have significantly outperformed buy-hold strategies as well as traditional linear technical analysis methods when combined with rule-based expert systems.
While the advanced mathematical nature of such adaptive systems has kept neural networks for financial analysis mostly within academic research circles, in recent years more user friendly neural network software has made the technology more accessible to traders. However, large-scale application is problematic because of the problem of matching the correct neural topology to the market being studied.
Rule-based trading
Rule-based trading is an approach intended to create trading plans using strict and clear-cut rules. Unlike some other technical methods and the approach of fundamental analysis, it defines a set of rules that determine all trades, leaving minimal discretion. The theory behind this approach is that by following a distinct set of trading rules you will reduce the number of poor decisions, which are often emotion based.
For instance, a trader might make a set of rules stating that he will take a long position whenever the price of a particular instrument closes above its 50-day moving average, and shorting it whenever it drops below.
Combination with other market forecast methods
John Murphy says that the principal sources of information available to technicians are price, volume and open interest. Other data, such as indicators and sentiment analysis, are considered secondary.
However, many technical analysts reach outside pure technical analysis, combining other market forecast methods with their technical work. One such approach, fusion analysis, overlays fundamental analysis with technical, in an attempt to improve portfolio manager performance. Another advocate for this approach is John Bollinger, who coined the term rational analysis for the intersection of technical analysis and fundamental analysis.
Technical analysis is also often combined with quantitative analysis and economics. For example, neural networks may be used to help identify inter-market relationships. A few market forecasters combine financial astrology with technical analysis. Chris Carolan's article "Autumn Panics and Calendar Phenomenon", which won the Market Technicians Association Dow Award for best technical analysis paper in 1998, demonstrates how technical analysis and lunar cycles can be combined. It is worth noting; however, that some of the calendar related phenomena, such as the January effect in the stock market, have been associated with tax and accounting related reasons.
Investor and newsletter polls, and magazine cover sentiment indicators, are also used by technical analysts.

Charting Terms & Indicators

TYPES OF CHARTS:

OHLC - Open High Low Close charts plot the high and low of the price movement vertically and the open and close horizontally. Used to graph range and outliers.
Candlestick chart - Similar to OHLC, but open and close are filled. Red candles represent a close lower than the open. White candles represent a close higher than the open.
Line chart - Connects each closing interval together on a line

CONCEPTS

Average true range - averaged daily trading range, adjusted for price gaps
Chart pattern
Coppock - Edwin Coppock developed the Coppock Indicator with one sole purpose: to identify the commencement of bull markets
Dead cat bounce - the phenomenon whereby a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement
Elliott wave principle and the golden ratio to calculate successive price movements and retracements
Hikkake Pattern - pattern for identifying reversals and continuations
Momentum - the rate of price change
Point and figure charts - charts based on price without time

OVERLAYS

Overlays are generally superimposed over the main price chart.
Resistance - an area that brings on increased selling
Support - an area that brings on increased buying
Breakout - when a price passes through and stays above an area of support or resistance
Trend line - a sloping line of support or resistance
Channel - a pair of parallel trend lines
Moving average - lags behind the price action but filters out short term movements
Bollinger bands - a range of price volatility
Pivot point - derived by calculating the numerical average of a particular currency's or stock's high, low and closing prices

PRICE-BASED INDICATORS

These indicators are generally shown below or above the main price chart.
Accumulation/distribution index—based on the close within the day's range
Average Directional Index — a widely used indicator of trend strength
Commodity Channel Index - identifies cyclical trends
MACD - moving average convergence/divergence
Parabolic SAR - Wilder's trailing stop based on prices tending to stay within a parabolic curve during a strong trend
Relative Strength Index (RSI) - oscillator showing price strength
Rahul Mohindar Oscillator - a trend identifying indicator
Stochastic oscillator, close position within recent trading range
Trix - an oscillator showing the slope of a triple-smoothed exponential moving average, developed in the 1980s by Jack Hutson.

VOLUME-BASED INDICATORS

Money Flow - the amount of stock traded on days the price went up
On-balance volume - the momentum of buying and selling stocks
PAC charts - two-dimensional method for charting volume by price level

EMPIRICAL EVIDENCE

Whether technical analysis actually works is a matter of controversy. Methods vary greatly, and different technical analysts can sometimes make contradictory predictions from the same data. Many investors claim that they experience positive returns, but academic appraisals often find that it has little predictive power. Modern studies may be more positive, however –- of 95 modern studies, 56 concluded that technical analysis had positive results, although data snooping and other problems make the analysis difficult. Nonlinear prediction using neural networks occasionally produces statistically significant prediction results. A Federal Reserve working paper regarding support and resistance levels in short-term foreign exchange rates "offers strong evidence that the levels help to predict intraday trend interruptions," although the "predictive power" of those levels was "found to vary across the exchange rates and firms examined."
Critics of technical analysis include well-known fundamental analysts. For example, Peter Lynch once commented, "Charts are great for predicting the past." Warren Buffett has said, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer" and "If past history was all there was to the game, the richest people would be librarians."
An influential 1992 study by Brock et al. which appeared to find support for technical trading rules was tested for data snooping and other problems in 1999; the sample covered by Brock et al was robust to data snooping.
Subsequently, a comprehensive study of the question by Amsterdam economist Gerwin Griffioen concludes that: "for the U.S., Japanese and most Western European stock market indices the recursive out-of-sample forecasting procedure does not show to be profitable, after implementing little transaction costs. Moreover, for sufficiently high transaction costs it is found, by estimating CAPMs, that technical trading shows no statistically significant risk-corrected out-of-sample forecasting power for almost all of the stock market indices." Transaction costs are particularly applicable to "momentum strategies"; a comprehensive 1996 review of the data and studies concluded that even small transaction costs would lead to an inability to capture any excess from such strategies.
MIT finance professor Andrew Lo argues that "several academic studies suggest that...technical analysis may well be an effective means for extracting useful information from market prices."
In 2008 Dr. Emanuele Canegrati, in his unpublished paper "A Non-random Walk Down Canary Wharf" conducted the largest econometric study ever made to demonstrate the validity of technical analysis for the first biggest companies listed on the FTSE. By analyzing more than 70 technical indicators, some of them almost unknown until then, the study demonstrated how market returns can be predicted, at least to a certain degree, by some technical indicators.

Efficient Market Hypothesis

The efficient market hypothesis (EMH) contradicts the basic tenets of technical analysis by stating that past prices cannot be used to profitably predict future prices. Thus it holds that technical analysis cannot be effective. Economist Eugene Fama published the seminal paper on the EMH in the Journal of Finance in 1970, and said "In short, the evidence in support of the efficient markets model is extensive, and (somewhat uniquely in economics) contradictory evidence is sparse." EMH advocates say that if prices quickly reflect all relevant information, no method (including technical analysis) can "beat the market." Developments which influence prices occur randomly and are unknowable in advance. The vast majority of academic papers find that technical trading rules, after consideration for trading costs, are not profitable.
Technicians say that EMH ignores the way markets work, in that many investors base their expectations on past earnings or track record, for example. Because future stock prices can be strongly influenced by investor expectations, technicians claim it only follows that past prices influence future prices. They also point to research in the field of behavioral finance, specifically that people are not the rational participants EMH makes them out to be. Technicians have long said that irrational human behavior influences stock prices, and that this behavior leads to predictable outcomes. Author David Aronson says that the theory of behavioral finance blends with the practice of technical analysis:
By considering the impact of emotions, cognitive errors, irrational preferences, and the dynamics of group behavior, behavioral finance offers succinct explanations of excess market volatility as well as the excess returns earned by stale information strategies.... cognitive errors may also explain the existence of market inefficiencies that spawn the systematic price movements that allow objective TA [technical analysis] methods to work.
EMH advocates reply that while individual market participants do not always act rationally (or have complete information), their aggregate decisions balance each other, resulting in a rational outcome (optimists who buy stock and bid the price higher are countered by pessimists who sell their stock, which keeps the price in equilibrium). Likewise, complete information is reflected in the price because all market participants bring their own individual, but incomplete, knowledge together in the market.

Random Walk Hypothesis

The random walk hypothesis may be derived from the weak-form efficient markets hypothesis, which is based on the assumption that market participants take full account of any information contained in past price movements (but not necessarily other public information). In his book A Random Walk Down Wall Street, Princeton economist Burton Malkiel said that technical forecasting tools such as pattern analysis must ultimately be self-defeating: "The problem is that once such regularity is known to market participants, people will act in such a way that prevents it from happening in the future." In a 1999 response to Malkiel, Andrew Lo and Craig McKinlay collected empirical papers that questioned the hypothesis' applicability that suggested a non-random and possibly predictive component to stock price movement, though they were careful to point out that rejecting random walk does not necessarily invalidate EMH.
Technicians say the EMH and random walk theories both ignore the realities of markets, in that participants are not completely rational and that current price moves are not independent of previous moves. Critics reply that one can find virtually any chart pattern after the fact, but that this does not prove that such patterns are predictable. Technicians maintain that both theories would also invalidate numerous other trading strategies such as index arbitrage, statistical arbitrage and many other trading systems.