Trading foreign exchange may not be as simple as most people will want to believe, there are obviously a lot of technical analysis that goes on behind the scene to ensure that one takes the right trading decisions. Forex technical analysis are fairly complex due to the number of factors that come into play and the massive amount of data that must be analyzed to improve the chance of trading right.
This article has as its main objective the demystification of the complexity of forex technical analysis for a beginner. The use of technology has made it easy to do most of this technical analysis at the click of a mouse but it still very important that we understand the process through which they are arrived at as this will make interpretation easy.
WHAT IS TECHNICAL ANALYSIS
This refers to the study of by forex traders of the price movement. It’s a tool for analyzing the price movement as they occur in the charts. It based on the assumption that studying past currency movement can improve our predictive ability as to the future movements of the same currency pair.
By and large, technical analysis searches for familiar or similar patterns. One of the tools used for technical analysis is forex charts because of all, they are the easiest.
Technical analysis can tell you when to enter and when to back out; it gives you the power of foresight to literarily see the future
TECHNICAL INDICATORS – TREND
Trend lines are the direction of the price. When the price changes in a certain direction we have a trend. Example when it changes upwards, we have an upward trend and vice versa. There may be small trends inside a larger trend
A LIST OF TECHNICAL ANALYSIS FOR TRADERS
- MOVING AVERAGES
This remains one of the oldest technical analyses and very commonly used everywhere; it provides a trader with the trend direction and waters down the rate of inflation so that you can see through to the true market rates.
- STOCHASTIC OSCILLATOR
This tool is very useful in predicting future directions and is built on the theory that during an upward movement of trends, the market will retain prices at the same level as the previous closing price.
- FIBONACCI RETRATMENTS
This is considered highly predictive of the possible future exchange rates.
WHICH INDICATOR IS BEST
The answer to this question lies with the individual; the advice is for traders to choose the indicators with which they are comfortable. But learning how to use all will really be of great help and may make you higher above average in your profit
HOW TO MAKE TECHNICAL ANALYSIS
There is no denying that some traders have complain that this tools do not help them, there are many factors, but once it is certain that the technical knowledge is not deficient then psychological factors may be the reason
It is known that our psychology has such a strong effect on us that it can determine what we see when we look at a piece of data. It is very important that a forex trader learn to master his/her emotions, this will be of great essence especially when big sums of money are involved.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.