Technical Analysis is the study of how prices in freely traded markets behaved through the recording, usually in graphic form, of price movements in financial instruments. It is also the art of recognizing repetitive shapes and patterns within those price structures represented by charts.
Like their counterparts in the equity markets, technical analysts of the forex analyze price trends. The only key difference between technical analysis in forex and technical analysis in equities is the time frame: forex markets are open 24 hours a day. As a result, some forms of technical analysis that factor in time must be modified to work with the 24-hour forex market. These are some of the most common forms of technical analysis used in forex:
- The Elliott Waves
- Fibonacci studies
- Parabolic SAR
- Pivot points
Many technical analysts combine technical studies to make more accurate predictions. (The most common is combining the Fibonacci studies with Elliott Waves.)
Currency trading is the most liquid and robust market in the world.
When you're trading currency pairs, you're effectively buying one currency and selling the other currency. Let's take a simple example to illustrate how this works: the EUR/USD is a commonly traded currency pair. The EUR is the symbol for the Euro and the USD is the symbol for the US Dollar. In the above currency pair, the EUR is referred to as the base currency and the USD is referred to as the quote currency.
The ratio is actually viewed as a single unit, even though it refers to 2 individual currencies. In other words, you trade the EUR/USD currency pair – not the EUR or the USD.
Let us further clarify this basic currency trading example by adding in a few figures. If we assume that the EUR/USD is trading at 1.25345, this means that every €1 = $1.25. In other words the Euro is stronger than the dollar, or conversely you would need more dollars to buy euros
A Few Basic Terms in Currency Trading
Major Currency Pair
When you trade currency pairs, you will encounter six major currency pairs in your daily trades. These include the GBP/USD, USD/CHF, USD/JPY, USD/CAD, AUD/USD and EUR/USD. Simply put, these are the most actively traded currency pairs in the world, and they are more likely to have greater volatility. When you trade major currency pairs at HighFx you are guaranteed low spreads – another great reason to trade with us.
Minor Currency Pair
Minor Pairs by contrast are those currency pairs that are less traded than the major currency pairs. They are less liquid than the major currency pairs and they often have wider spreads. As a general rule, minor currency pairs are any pairs other than the six major currency pairs listed above. Here at HighFx, we've got a wide selection of minor currency pairs for you to trade.
Exotic Currency Pair
Exotic currency pairs typically include a currency from an emerging market country. The reason that they are called exotic currency pairs has nothing to do with the location of the country, but rather the additional challenges involved in trading these currency pairs. Exotic currency pairs are generally illiquid, with wider spreads and fewer market-makers. Examples of exotic currency pairs include the South African Rand (ZAR), the Hong Kong Dollar (HKD) and the Mexican Peso (MXN).
Open an account at HighFx to begin trading your favourite major, minor and exotic currency pairs today.