Forex Technical Analysis
Technical analysis is perhaps the most popular analysis tool (perhaps over and above fundamental analysis) in forex markets. And you could easily understand why: fundamental factors move the market every day or so whereas short terms movements are driven by more “gut-feeling” factors, i.e. technical analysis. Also, it’s a self-fulfilling prophecy: the more people follow technical analysis, the more it will have a strong impact in determining market movements. With such a large market, many people have understandably made a fortune by trading on Forex.
There are three reasons why you would want to use technical analysis to trade Forex – simplicity, proven strategy and efficiency.
When you evaluate the trading patterns on the Forex market, you will notice that there are trends that appear and are repeatable over time. The goal of analysis is to identify these trends and to spot where we are in the trend. If we are at the start of a rising trend, the technical analysis will have us buy currency. The same technical analysis will tell us to sell the currency when we are reaching the top of the trend.
Trading on Forex can be very daunting for someone starting out. There is a specialized vocabulary that needs to be learned. It is so challenging that most brokerage houses offer what is called a “trial account” to let you practice trading without using real money. The purpose of the trial account is to get your feet wet as you learn how to trade.
Once you have started to learn how to trade, you can trade Forex manually but this is very much a labor intensive process and requires you to be able to determine if the market is rising or falling. A better option is to use a computer system that can quickly evaluate the trading patterns every minute of the day for the past week, month, or year. The computer will use technical analysis to evaluate the trends and then present them in easy to understand charts.
There are many different ways that you can use to do technical analysis on the Forex trading patterns. Some of the most common methods are stochastic oscillators, moving averages, momentum oscillators, and Fibonacci retracements. There are other methods that you can use for analysis. As you become a seasoned trader, you need to evaluate which method or methods you want to use. Then create a trading system that evaluates the trading patterns using these techniques. Based on these rules, you then decide when to buy and sell.