Technical Analysis helps us understand how many notes and coins to risk on a trade, how and when to emerge into the market and how to leave the trade for gains or to reduce loss. This article helps you focus on technical analysis with an explanation of some of the vital and significant points.
Most wealthy traders use technical analysis but not all technical analysis traders are wealthy although Technical Analysis (more commonly known as T.A.) is the most accurate method of trading the Forex market. Fundamentals also play their role in revealingif a price will rise or fall. Giving you an advantage over other traders.
One perspective of technical analysis is: you know that prices go up or fall down in trends and research has shown trading ‘with the trend’ can greatly improve your chances of making a profitable trade. Trends make you aware of the overall market direction and often rescue you from less, then profitable entry points. The biggest thing I learned from a two day course that cost me over $2500 AUD was the need for discipline and emotional control. The content the course contained was so basic. Learning the ‘tools of the trade’ the technical indicators and their applications will help you to diagnose what the market is doing but you need to expect ups and down and trade with emotional control.
3 Reasons Technical Analysis is so dominant:
a) All data and information that impact the market and traders are represented in the currency price. Technical analysis represents these numbers.
b) The Forex market itself is very ‘trendy’ and it helps to be able to foresee or predict these trends.
c) Some chart patterns are unswerving, dependable and repeat themselves. Technical Analysis will help you to view these patterns.
Be with the trend, track the price.
Find the worth of the currency pair. If EUR/ USD is 1.4224 and moves to 1.4180 then 1.4090 then the market is in a falling trend. Worry only with what the market IS doing not what it MAY or can do. Pay attention to the markets and the pointers will support what they explain.
Moving averages will tell you the price at a given point of time over a definite time of recess. They are referred to as moving because they provide you the current and latest price while calculating the average depending on the chosen time measure.
There are simple moving averages, linearly weighted which give more priorities to the current and latest prices. It considers all prices in a time period but highlights the significance of the latest price changes.
Illustrate cycles found all over the nature and when functioned to technical analysis can find stints in the market trends. After a rise prices often retrace a large portion sometimes the entire initial move. Support and refusal to accept levels mostly occur near the Fibonacci retracement levels.
The Relative Strength Index evaluates the market actions to see if it’sbought or sold exceeding the limits. RSI is a prominent pointer which helps to signify what and how the market is doing. A higher RSI number gauges the overbought and a lower number means it is oversold.
MACD is based on moving averages, a MACD schemes the variances between a 24 exponential moving average and a 10 day exponential moving average, with a 7 day used as a trigger line. If a MACD turns out to be affirmative and constructive when the market is still tumbling it can be a firm buy indicator. The contrary also works.
Prices incline to stay between the upper and lower bands. They amplify and become tapered depending on the instability of the market at the time. A sell signal would be when the moving average is above the Bollinger bands and vice versa for a buy signal. Some traders use it in conjunction with RSI, MACD, CCI and Rate of Change.
Use 3 or 4 signals to provide more decisive signals before involving a trade. And remember, “If you are unsure or not confident, keep out of it!” Technical analysis doesn’t take in to consideration political news, a country’s economic profile or fundamental supply and demand.
Technical analysis will help you know when to enter the market, how to exit a trade and minimise risk. It is one tool to help you navigate in the forex market.