Technical analysis is often dispelled as a myth, even a fool’s errand. There are those who believe that price movement is completely random and completely unpredictable. True, technical analysis is never an exact science (predicting the future never is). However, the true fool would be he or she that ignores the power of technical analysis, particularly in the Forex market.
Analyzing price patterns is actually very similar to analyzing human behavior. While humans can at times be unpredictable in nature, humans are typically considered to be creatures of habit. The average human adheres to certain paradigms, paradigms that are rarely broken. Do you brush your teeth or shower first? Do you comb your hair before or after you shave? The point: if one were to observe an average person’s daily routine before leaving the house for work their behavior may seem random or without purpose. However, if one were to observe the same human day after day, within a relatively short amount of time it would not be hard to outline that person’s morning routine. In fact, nine times out of ten you would probably be able to predict with impressive accuracy how your observed creature would prepare for their day, perhaps even down to the minute.
* The Forex market is also a creature of habit. Analyzing price movement is effective because the past can teach us how human beings (the real living and breathing organism of this market) will react to certain situations. History does repeat itself. Technical analysis offers the Forex trader a certain level of expectancy when considering future price movements. In a sense, accurate technical analysis is a trader’s true edge. There is no crystal ball for predicting the future of the market, though there are keys to understanding patterns, past, present and future.
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