Forex technical analysis: a practical introduction

What technical analysis can and cannot do

Technical analysis assumes that price already reflects what the market knows and that recurring behaviour, such as trends and reactions at levels, can be used to plan trades. It cannot predict the future. Its real value is structure: it helps you define where to enter, where to place a stop-loss and where to take profit, so that every trade has a measurable risk.

Fundamental analysis, meaning interest rates, inflation, growth and central bank policy, explains why currencies move over months. Many traders use fundamentals for the big picture and technicals for timing.

Prices now

Reading candlesticks

Each candlestick shows the open, high, low and close for one period. A long body shows strong buying or selling; long wicks show prices that were rejected. Single candles mean little on their own; they become useful at important levels, where a rejection candle at support or resistance can signal that the level is holding.

Trend and market structure

An uptrend is a series of higher highs and higher lows; a downtrend is lower highs and lower lows. When neither is true, the market is ranging. Identifying the structure on a higher timeframe first, such as the daily chart, stops you from buying small dips in what is really a falling market.

Support and resistance

Support is a price area where buying has repeatedly stopped declines; resistance is where selling has stopped rallies. They are zones, not exact lines. Round numbers, previous swing highs and lows, and the previous day's high and low are common reference points. Once broken, support often becomes resistance and vice versa.

Gold traders watch round numbers closely: levels such as whole hundreds of dollars in XAU/USD often attract orders. The Invvex XAU/USD page shows daily pivot levels calculated from the previous session.

Moving averages

A moving average smooths price over a set number of periods. Traders use the slope to judge trend direction and the average itself as a dynamic support or resistance. Common choices are 20, 50 and 200 periods. Crossovers can signal changes in trend but lag price, so they work poorly in ranges.

RSI, MACD and ATR

The Relative Strength Index (RSI) measures momentum on a 0–100 scale; readings above 70 or below 30 are often called overbought or oversold, but in strong trends RSI can stay there for a long time. MACD compares two moving averages to show momentum shifts. The Average True Range (ATR) measures how far price typically moves per period, which is very useful for setting stops that are not too tight for current volatility.

Use a small number of tools you understand. Several indicators that all measure momentum do not confirm each other; they repeat the same information.

Chart patterns

Patterns such as double tops and bottoms, head and shoulders, triangles and flags describe how price has paused or reversed before. They are useful mainly because they give clear levels: a breakout point to watch, an obvious place for a stop-loss, and a rough measured target. Many patterns fail, so treat them as a way to frame risk rather than as a forecast.

Timeframes and confluence

Analyse from the top down: the daily or 4-hour chart for direction and key levels, then a lower timeframe such as the 1-hour or 15-minute chart for entry timing. A setup is stronger when several independent factors line up, for example an uptrend on the daily chart, a pullback to support, and a rejection candle there.

Putting it into a trade plan

Technical analysis becomes useful only when it turns into a plan: an entry condition, a stop-loss where the idea is invalid, a target or exit rule, and a position size based on your risk. Write it down before the trade and review it afterwards. Check the economic calendar too, because a strong chart setup can be overwhelmed by a major data release.

Frequently asked questions

Risk warning: CFDs and leveraged trading are high-risk. This content is educational, not investment advice.