In this section, we will give you several tips to help you practice forex technical analysis well, and avoid costly beginner’s mistakes.
1- Choose a Trading Software Suitable for Forex Technical Analysis
If you want to learn how to read charts correctly and learn how to trade, you will need training, but above all to use good tools. They will help you accomplish this important task. However, to perform good forex technical analysis, you will need a good trading platform, which provides real-time charts, but also all the indicators and drawing tools you will need to perform complete forex technical analysts.
2- Perform Simple Technical Analysis
Many different tools are used for forex technical analysis. These tools, mainly technical indicators, quickly make charts completely unreadable. In addition, indicators sometimes contradict each other and using too many leads to stagnation, or poor trading decisions. We, therefore, recommend that you limit yourself to 2 indicators per chart, coupled with chart tools such as supports and trend lines.
3- Widen the Time Period
It is easy to get into the habit of myopically scrutinizing five or fifteen-minute charts looking for a very short-term trading opportunity, or scalping trading. But it is essential to identify long-term trends in forex currency pairs to know what to do in the short term. Indeed, if the long-term trend is positive, it will be better to look for short-term buying opportunities as well.
Likewise, if the long-term trend is bearish, it is also necessary to favor short-term selling, or in-day trading. This is why forex technical analysts usually use 2 different charts. For example, a daily chart to analyze the trend, and an hourly chart to define more precisely when to buy or sell and what goals to set.
4- Don’t Rely On a Single Type Of Indicator
Just as you should not overly multiply the indicators you use, you shouldn’t rely on just one tool either. There are hundreds of technical indicators. These indicators can be grouped into four broad categories: momentum, volatility, volume, and trend. As with your portfolio, diversifying in your technical analysis is essential.
There is nothing wrong with relying heavily on one volume indicator, but not four-volume indicators. It would be unnecessary because it would probably complicate your transactions. Along the same lines, the leading indicators should be learned. The main difference is that some of the indicators can wake you up to a new trend. On the other hand, the other indicators can confirm the existence of a trend that may be identified by another indicator. This will allow you to know which indicators combine best.
5- Build a Coherent Trading Plan Using Forex Technical Analysis
It should never be forgotten that forex technical analysis covers all stages of trade. Trend analysis, to know which way to position yourself. Trading signals, to know exactly when to position. And the graphical tools, to know where to place stops and limits. You must therefore define which forex technical analysis tools you will use in each of these steps. This will ultimately build a cohesive trading plan. This trading plan will be your step-by-step tutorial on exactly what to do and when, and which technical indicators to use when. This is an essential tool if your plan to become a trader is serious.
READ MORE: Forex Technical Analysis 101