Technical analysis is an approach that uses tried and tested indicators to help an analyst identify when financial markets are moving upwards or downwards. Successful traders tend to combine different types of technical analysis for optimal results.

Technical analysis looks at market data such as price, volume, and open interest to determine future price movements. It has become popular among forex traders in the UK because they can do it without prior knowledge or experience in market trading. These forecasts are not 100% accurate for every trade you will take; however, they provide crucial information on whether a specific security trend is likely to continue or reverse. 

The most popular types of Technical analysis

Here are the most popular types of technical analysis used in Forex trading

Line chart

The line chart is one of the simplest forms of technical analysis. This method helps examine trends over shorter periods, typically days or weeks rather than months or years. By looking at a line chart, investors may spot several things, including mid-term support and resistance levels as well as short term breaks in established trends.

Bar chart

The vertical bar on a bar chart represents the high and low prices for a given period. Each bar is ranked numerically, with a higher number representing a higher price, and each bar corresponds to a specific point in time. A wide spread between numbers indicates a substantial price movement during that period. The top and bottom of each vertical line show where buyers could push the market up or down, respectively. Bars may be coloured depending on whether they represent an increase or decrease in prices.


Candlesticks are another visual representation of price data that can help traders see various patterns emerging over shorter or longer periods. The candlestick reveals the open, close, highest and lowest prices for the given period. A black candlestick indicates that the closing price was lower than the opening price, while a green bar shows the true reverse. The bar’s colour does not affect its meaning, though traders may choose to change or omit this element depending on their preferences. 

The other notable aspect of candlesticks is ‘the wick’. This is often depicted as two vertical lines that stretch upwards from the bar’s body and represent high and low points at either end relative to market movement during that particular time frame.

Support and Resistance

The support and resistance levels are among the key features of technical analysis systems. These are crucial because they show where buyers were able to push prices up in the past and where sellers could push prices down. The support level is a price that security has trouble falling below, while the resistance level is a ceiling beyond which an asset struggles to break. 

This is because of demand at these levels. If a particular price level has been strongly supported in the past or resisted as buyers fought to keep it high, it will be more difficult for the market to move away from this point now. For example, strong buying during an economic crisis last year could create significant support now that global conditions have stabilised again.

Relative Strength Index

The relative strength index (RSI) uses momentum oscillators to indicate differences between upward and downward movements over a given period. The RSI scores the strength of a price movement over time, with values typically ranging between 0 and 100. A low score can indicate either that there is no clear momentum to move prices in either direction or that the prevailing trend is realigning. A high RSI indicates strong upward momentum, showing resistance levels tested more frequently.

Bottom Line

The usefulness of technical analysis cannot be overstated, considering that 90% of funds actively traded in the forex markets employ them. Nevertheless, one should always combine various forms of analysis before deciding when to buy and sell certain assets. New traders should use a reputable online broker from Saxo Bank before starting their investment journey.