Foreign Exchange: A Practical Guide to the FX Markets

CHAPTER 13

Technical Analysis

I always laugh at people who say they’ve never met a rich technician.

—Martin Schwartz

I’ve never met a rich technician.

—Jim Rogers

 

 

 

Disclaimer: This chapter is not meant to provide a tutorial in technical analysis. There are a number of classic references on this subject: John Murphy’s Technical Analysis of the Financial Markets, Martin Pring’s Technical Analysis Explained, and Jack Schwager’s Getting Started in Technical Analysis. What we hope to do here is to ensure that the reader knows the names of some of the more popular approaches, to try to explain why it may be worthwhile gaining some familiarity with one or more of these techniques, especially in the FX markets, and to identify how this “art” is evolving into a “science.”

INTRODUCTION

As we mentioned briefly in our discussion of marketmaking, there are two primary avenues of analysis that attempt to gain an insight into whether a market is going up or going down: fundamental analysis and technical analysis. Fundamental analysis (also known colloquially as “demand and supply”) purports to provide an understanding of the underlying economic factors that are influencing buyers and sellers, and, thereby, to gain some insights or advantages in predicting future price movements. Technical analysis is an entirely different paradigm. Utterly eschewing the underlying economic drivers, technical analysts focus solely on past price movements, trends, and patterns in an effort to gain an understanding ...