H umans process roughly 90% of the information about the world through vision. Therefore, perception training is vital if the solution of the problem depends on the conclusions made by looking at visual images.

It turns out, at least 90% of trading also consists of just looking at moving images! Therefore, in the Forex market, there is such a thing as Graphical Analysis. In simple terms, Graphical Analysis is the interpretation of information on a chart in the form of graphical formations and the identification of repetitive patterns in them.

Something worth noting is that as opposed to an approach from the standpoint of Technical Analysis, Graphical Analysis does not provide a clear answer on what to do and how to do it. It is primarily due to the presence of more complex theoretical models, in some cases imperfect and with certain inaccuracies. For this reason, automating the process of finding graphic patterns is a much larger task.

Therefore, it is essential to use the right tools. The use of external tools contributes to objective perception and eliminates the majority of erroneous primary conclusions caused by emotions. A basic rule of thumb in trading is that you can’t really rely only on your own perception, you need to confirm your suggestion with the help of extra tools.

How graphical analysis works

Like most of the other technical tools, Graphical Analysis is faced with the task of finding patterns in history. The simplest example would be the support and resistance levels. These lines are a graphic representation of the struggle between bulls and bears. Bulls push prices up, bears — down. The winners dictate the future movement of prices.

Support level is the level at which bulls control prices and prevent them from further decline. In contrary, resistance is the level at which bears control prices. Support levels reflect the price that gives the investor hope for the price increase, while resistance levels are the opposite — they show the price from which the investor expects a decline, basic stuff.