One use of technical analysis, apart from
technical studies, is in deriving "support" and
"resistance" levels. The concept here is that the market will
tend to trade above its support levels and trade below its resistance
levels. If a support or resistance level is broken, the market is then
expected to follow through in that direction. These levels are determined
by analyzing the chart and assessing where the market has encountered unbroken support
or resistance in the past.
For example, GBP/USD has
established a resistance level at approximately 1.5700. In other words,
EURUSD has risen up to 1.5690 repeatedly, but has been unable to move above that
point:
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