Many financial assets are available on world markets for trading. One of the most popular methods is Forex trading that uses currencies as tools. Although theoretically, Forex trading sounds easy. In fact, many people out there are unsuccessful, and cannot gain the money they have dreamt of. Of course, trading is more than just making money. It is all about strategies and analysis that need to be applied to enjoy the glory for a longer time.
One of the most important matters in trading, particularly Forex trading, is technical analysis. Technical analysis refers to predicting the price in the future based on price movements in the past. This way, you should not be surprised if, in the technical analysis, some matters beyond the price movement tend to be ignored, including news and other fundamental data. Indeed, if you have experience, you can combine technical analysis with fundamental data for additional profit.
Trading strategies based on technical analysis involve some steps. Each of the steps is to clarify the price movements. Therefore, the points of the entry and exit level can just be determined. So, if this technique is of interest to you, you can follow the steps below for trading.
Technical Analysis Overview
Technical analysis is a trading strategy that uses the technique to predict the market direction in the future by cross-checking the chart patterns and formations in the records.
This strategy helps traders and market analysts to retrieve the historical information and helps traders understand where market prices may go. Fundamental analysis will differ from the Technical analysis.
Understanding the Market Condition
Of course, the first and the main step is understanding the current market condition. After that, you can determine in what timeframe you will trade as well as what chart to use. There are some options for this; they are H1, H4, and Monthly. If a trader decides to trade in the Monthly chart, he does not need to worry about the short-term volatility if the capital is adequate.
On the other hand, for short-term trading, it is important to see the market condition in a bigger timeframe to avoid false decisions in Stop Loss and Take Profit.
Understanding Technical Analysis
Technical analysis can be conducted in different ways. But the most relevant in the trading ecosystem is by exploiting the information offered by historical price charts.
The tools which are relevant to technical analysis are the technical indicators or oscillators. With these tools, one can find out the patterns which they can comprehend to find the momentum for entering or exiting the current market.
Technical analysis is an important aspect to help traders to identify the patterns in the market.
The charts from a technical analysis tool reports the price movement in candlesticks. You could see the forms of the candlesticks by browsing around through your favorite search engines. In this case, the candlesticks focus on the key points demonstrations.
There are some parts that you need to know when it comes to the candlesticks: green, red, bars, wicks, and the patterns.
The colour of the candlesticks signifies the movement. The candlesticks will turn to green if these move up, and red if the price move down. Meanwhile, the bars showcase the status of the price whether it is opening or closing.
Finally, the wicks show the readers whether the prices are in the highest or lowest. When it comes to the patterns, this page itself does not have enough space to explain it all. Make sure you check on other sources to find out the common 16 candlestick patterns.
There are various indicators which you can use on the charts.
In identifying the price points for entering and exiting the trades, you could use the moving averages, Bollinger bands, as well as Fibonacci retracements. However, the seasonal traders will have their own personal opinions and styles. So, this is still flexible.
Just like in any other practice, you might want to test the strategy before applying in the real financial markets.
The best way to do this is to apply the technical analysis towards the previous movements of the price.
The market analysts refer to this test as “back-testing” based on the previous price movements, the traders and market analysts will be able to notice important information so that they can make new positions with informative decisions.
Dow Theory as the Basis of the Technical Analysis
The Dow Theory is the basis of the technical analysis. In a shorter explanation, you will want to focus on certain aspects including the trends types, price movements phases, as well as the news on different categories that can affect the market.
When it comes to the news, it can be from different niches such as political, industrial, social economy, and so on.
When to use Technical Analysis?
Whether you are conducting short-term or long-term trading, it is a good idea to use technical analysis
If you prefer long-term investment, the technical indicators in the technical analysis can help you to figure out the best time to add the shares to your portfolio.
Meanwhile, if you prefer to have short-term investment, the technical analysis can help you to find the opportunities easily.
If you have just started to trade, you will soon realize that timing is an important key to a successful trading activity.
The technical analysis can help you to find out the perfect timing to be aggressive or defensive. It can also help you to maximize the profits and minimize the losses. cc. https://comparebrokers.co/
