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If you want to be a successful FOREX trader then you need a plan or a strategy to help you decide what trades to make. Each trader needs to develop a strategy that suits them and their circumstances.
There is a common saying in the FOREX market “The trend is your friend”. This is because prices tend to move in trends if you can spot and ride these trends then you will be profitable. Technical analysis is based entirely on finding and analyzing these trends. The market moves in distinctly identifiable patterns, the patterns have been studied for years and are well known. Learning these patterns and developing the ability to read these trends is the basis of a solid strategy based on technical analysis.
There are many tools available to help analyze and understand the market movements and patterns. As a beginning FOREX trader you should study each tool independently to develop a good working knowledge of its function and use.
You will find many trading strategies are based on “support” and “resistance” levels. The support level is what is considered the bottom price for a currency; the currency will drop to this level and then eventually rise again. Once it reaches this point it will eventually drop again. It is normal for support and resistance levels to gradually shift over time.
If a currency suddenly moves beyond it’s normal support or resistance levels then it is expected that the currency will continue to move in that direction for a time. A currency is considered to be “bullish” when it is moving up, if a currency becomes bullish and breaks through its normal resistance level it is expected to continue moving upward for a time.
You need to study price charts to determine the support and resistance levels for a currency. You study the charts looking for an unbroken pattern of high and low prices that the currency does not exceed. The longer time span you use for your charting the more accurate and dependable your final analysis will be.
This just one strategy that a trader can used, this one is based entirely on technical analysis. To be truly successful a FOREX trader needs multiple strategies that they can employ based on market conditions.