The technique known as technical analysis seeks to identify each one of the critical behaviors that result in trend changes. This type of analysis is used mostly by traders that seek to work in short intervals of time. To be able to apply this type of analysis, it is vital to base decisions on the support and resistance lines (which refer to low indices and peak indices, respectively) along with other tendencies that are of great use.
We recommend to work following the trend, because in that way it is more plausible to witness favorable results. If there are bullish trends it is possible that these will be less defined than bearish trends.
Regarding the indicators and signals, different types of hard data may come up as you trade using technical analysis. The most commonly seen figures tend to be the “double maximums”, “double minimums”, “triangles”, “rectangles”, among many others. Indicators usually tell us whenever there is a trend based on overbought or oversold assets. Some indicators recommend to follow trends, and others predict when the price trend it is more likely to turn around.
There is another important concept inside technical analysis besides trends, figures and indicators, which were already mentioned in the earlier sections of this article, and that is “support and resistance”. This concept refers to the way price levels can vary when we analyze them in the graphs; if you, as a trader, are able to identify these lines, it will be much easier to identify whenever a price change will benefit or injure a buyer.
Breaking a support or resistance line is a fact that takes quite a relevance when it comes to technical analysis, even though fake ruptures do exist. It is possible that after a currency has reached a critical level, it will eventually overcome the line in question, but this does not mean that the signal will be picked up immediately by every trader.
Support lines are drawn on the bottom of the graph and resistance lines on the top. Support lines, as its name implies, are lines drawn in such a way that an asset or currency pair price does not go below said line. Resistance lines work in the same way, but they show a level where the asset’s price tends to stop rising. It is common for only one line to be drawn at a time.