Predicting future events, calls for precise use of mathematical tools. In the foreign exchange markets, the use of technical analysis provides one such means by which the future movement of the market can be predicted. This article focuses on the use of technical analysis in the foreign exchange market with reference to trend analysis and other quantitative methods of analysis, including, various types of moving averages and oscillators that are normally used to predict the future price movements.

In the past few years, foreign currency markets have experienced rampant growth. Driven by the increase in traders in the market, there has been increased profitability for a given level of risk. Though on the surface, trading in currency looks fairly simple, the actual task requires great elegance as it must tempt the trader to take unforeseen risks. Investing in foreign exchange markets needs constant updates about the movements taking place in the market so that the trader ends up with a successful deal. An investor of foreign currency needs a proper tool that aids in forecasting the future trend of the exchange rate. The tools used for analysis are broadly classified into twofundamental analysis and technical analysis. Though both types have their own importance in the foreign exchange market, this article looks at the trading technique based on technical analysis.

A foreign exchange market is a place where currencies are bought and sold for various financial needs. The international foreign exchange market is an over-the-counter market and operates round the clock. It can be broadly classified into the wholesale and the retail market. The wholesale market is mainly the market where big players like banks and currency brokerage firms deal with each other and with large corporations. Normally the financial market represents the wholesale market. The main participants in the wholesale market are the commercial banks, described as the market makers, they buy and sell currency for their clients and sometimes on their own account and carry inventories of currencies. The other players are the brokers who work as middlemen between the bank and other retail clients and book the commission. Corporations use foreign exchange to meet their export and import requirements, hedging receivable and payable loan repayments. Sometimes they also invest their surplus fund in order to book profits. In addition, the central bank also buys and sells foreign exchange in order to control the market movement.

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