The Foreign Exchange industry is expanding globally more and more and investors can make big profits. In addition to these, many people can also be damaged and lost. Besides being volatile in the market, successful traders and investors do the most important thing to educate themselves. One of the most important conditions for being successful in Forex investments is to be able to do Technical Analysis. In this article, you will see how to do Forex Technical Analysis and how to read charts. In addition, improving yourself on Forex Technical Analysis by browsing our other articles in the same series of articles will strengthen your hand in managing your investments.
What is Forex Technical Analysis?
- What is Forex Technical Analysis?
- The Objectives of Forex Technical Analysis
- Conclusion: Should You Trade with Forex Technical Analysis?
- Frequently Asked Questions
Forex technical analysis is used by traders and investors in the forex industry that is with high volatility. Using it, investors and traders analyze the price movements in the past and predict the new price movements that may occur in the future with technical comments.
The main reason traders use forex technical analysis is to make predictions about the future course of currency prices based on their past movement.
What is Forex Technical Analysis based on?
Technical analysis mostly accepts that all market variables show price action or movement on a chart. That’s why if one assumes that all of the market variables are reflected in the price movement, it makes sense that we don’t really need many things other than price for analyzing and trading in the markets.
Chart patterns that repeat themselves are essential for the technical analysts. They do this to develop their business advantage. The logic behind it is that since most price movements are led by people, certain patterns are repeated in the market. This is because people tend to be repetitive in their emotions and their engagement with the market.
Technical analysis includes learning to analyze market structure, researching trends, support and resistance levels, and generally learning to read fluctuations in a market. There is some room for error here and you have to be aware that Forex Technical Analysis is more of an art than logic.
It should also be noted that technical analysis is a method widely used by all traders. Indeed, some traders focus on technical analysis and ignore fundamentals, but the reverse is impossible with forex, where chart analysis is essential.
In the end, technical analysis therefore represents the bulk of a trader’s work. But luckily, as we’ll see in this guide, it’s also the easiest part of the trading profession to learn and master.
Bottom Line: Technical analysis, although it may seem complicated at first glance, is actually very easy to learn. All novice traders can learn enough in a week to perform reliable forex technical analysis and trade.
Some traders may then want to go further with more advanced forex technical analysis courses or by reading a forex technical analysis pdf book.
The Objectives of Forex Technical Analysis
Although the purpose of forex technical analysis is clear, namely to make trading decisions, this purpose can be broken down into several stages. Indeed, before buying or selling, a trader must analyze the trend (bullish, bearish or neutral), but also know exactly when to open his position. He must also have set a target, and a stop level at which he will abandon the position. We will detail all of this in this section.
Identifying Financial Market Trends
The first step in a trading decision is to determine the underlying trend. In an upward underlying trend, we will primarily look for buying opportunities. In a downward trend, we will primarily look for sales opportunities. And in a neutral trend, we will invariably be able to seize the opportunities for buying and selling.
To spot the trend of funds, the best technical analysis tools are chart analyzes. Trend lines and channels are indeed used to highlight trends at different levels on the charts.
Obtaining Trading Signals
Once you know which way to position yourself after studying the trend with chart analysis tools, you have to know exactly when to position yourself. For this, technical indicators will be the most suitable method. We’ve seen 3 of them in this guide, which let you know when to buy or when to sell. Note that it may be interesting to combine two indicators in order to obtain confirmations. Thus, one can decide to take a position only if the two indicators display the same signal.
Choosing Stop Loss and Take Profit Thresholds
Finally, the last step in a trading decision is setting the stop and limit. Here too, technical analysis intervenes, in particular with supports and resistances, which allow knowing when an upward movement is likely to encounter an obstacle and the same for downward movements. Other tools that we have not seen in this guide, such as Fibonacci retracements or pivot points, are also of great help in knowing where to position the stop and limit of a forex position.
Conclusion: Should You Trade with Forex Technical Analysis?
Technical analysis is therefore an essential tool for all traders in the currency market. This is the first thing you should master if you want to make money in forex. Indeed, forex technical analysis is involved at all stages of a trading decision. This ranges from defining the trend to choosing stops and limits, including spotting trading signals.
Fortunately, it is easy to learn the basics of technical analysis, as you have seen with the few analysis techniques explained in this guide. No special skills are needed to understand and use these techniques.
Frequently Asked Questions
Let’s end this guide by answering the most frequently asked questions about forex technical analysis.
Is Forex Technical Analysis Reliable?
Technical forex analysis is more of an art than a science. This means that it is impossible to get certainties. The goal of technical analysis is in fact to define in which direction the market is most likely to move. However, this does not allow us to be sure. Despite everything, we can estimate that a trader who has learned the basics of technical analysis will always have better trading results than a trader who has not made this learning effort.
What is the Best Method of Forex Technical Analysis?
There really isn’t a best forex analysis technique, but rather techniques that are more suited to certain objectives or contexts than others. For example, trend lines and channels are very useful in analyzing the direction of the market. Technical indicators are more suitable for obtaining trading signals and knowing exactly when to position. Finally, if you want to identify important thresholds and targets, supports, resistances, Fibonacci retracement and pivot points will be more suitable.
Is it Easy to Learn Forex Technical Analysis?
It’s easy to get scared when faced with a complicated forex technical analysis chart. However, as you may have understood from this guide, it is actually easy to learn technical analysis. Of course, it will take a little time, but you will not need any knowledge of mathematics or economics to master the technical analysis of financial markets.
Who is the Best Broker to Do Forex Technical Analysis?
The online broker eToro offers a very easy to use forex technical analysis platform. But it also offers all the tools expert traders need. This broker offers many other advantages, such as social trading functions, or strong regulation that guarantees its reliability.
Is It Better To Use Forex Technical Analysis On Long Term Or Short Term Charts?
Although technical analysis is more important in the short term than in the long term, all traders, regardless of their trading horizon, should practice technical analysis. This is indeed an analytical method suitable for scalpers as well as investors who follow trends over several years.