Using technical analysis to profit in forex trading

There are two basic ways to approach the analysis of the FOREX markets: Technical analysis and Fundamental Analysis. Someone who is using a fundamental analytical approach will look at the current economic climate, political events, a variety of economic indicators, and so on to try to predict currency moves. What we will examine is technical analysis, or the use of historical price patterns in economic data to predict future moves in the FOREX. We will also look at the tools used for technical analysis.

The three major assumptions underlying technical analysis are:

1 - All market forces are taken into account in price movement. Many things can affect the price of a currency. Some of these factors would be economic conditions, political happenings, natural disasters, seasonal supply and demand and even the weather. Technical analysis, however, does not attempt to take these into account because the market has already done that. Rather, a technical analyst is concerned with the actual movements of the market, not with the reasons for the movement.

2 - There are observable trends in currency prices movements. There are known market patterns that follow predictable paths.

3 - There are historical trends in price movements. Over a century of FOREX data collection has shown that human nature interacts with events in predictable ways. Thus, when circumstances are similar in the market, the same patterns will show up.

Technical Analysis: Is It Necessary?

Day traders in the FOREX usually use technical analysis most heavily, though they may supplement it with fundamental analysis. Technical analysis has the huge advantage of being applicable to a wide range of currencies and markets simultaneously. To properly do fundamental analysis requires a good knowledge of events and conditions in a certain country so the number of markets any particular trader can analyze by the fundamental approach is necessarily limited.

Technical analysis can seem so complicated to the beginner that they may be tempted to wonder if it is really needed. The truth is that all investing requires a strategy and technical analysis is a proven way to set strategy by predicting FOREX movements. Of course, no strategy or method is always successful, which is one reason many technical traders also do some fundamental analysis as a supplement.

USing Price Charts In Technical Analysis

Charts lie at the heart of technical analysis and you will find a good selection available from any online FOREX broker. Not only are the charts updated constantly, real time, but they can be viewed in a variety of ways. You can see movement over various periods of time, broken down into different time scales, and with various analytical overlays applied. With the software provided you can see the broad picture over a long period or zoom into the most minute detail. The basic software is free from most online Forex brokers but there may be a fee for the more professional, in-depth, information.

Sometimes the charts are a built-in part of the broker's software package. Alternately, they may be available on the broker's website.

Practice, or demo, accounts are available from most brokers on their website. These allow you to use the charts and tools of that particular software to learn the techniques of following charts, noticing and learning about trends and studying market movements. Nothing can substitute for this valuable period of becoming intimately familiar with charts and market behavior.

What everybody ought to know about forex technical analyses?

If you scour the internet trying to find out about forex technical analysis, you're going to have a mountain of information to go through. It seems everywhere you turn people want to make forex technical analysis as complicated as possible. All you ever see is how some traders talk about filling their charts with all these lagging indicators like stochastics, oscillators, moving averages and forming some kind of trading system. It really doesn't have to be this way.

Can you really call using all these indicators as a form of forex technical analysis? I'm sure many traders follow a trading system based on stochastics, but do any of them really understand what the price of the currency is doing. It may seem easier just following a couple of stochastic lines to make your trading decision for you, but most people would be hard pressed to have any idea what this has to do with the true market sentiment.

It seems that most people that study forex technical analysis forget that the oldest form of analysis is price action. Long before the rise of these lagging indicators, traders on the market floor were just using price action as their sole indicator for buying and selling. Traders like Jesse Livermore became millionaires just by following the movements of the price. He didn't even use a chart. It's very similar to what goes on in the market floor of the New York Stock Exchange to this day. It's not like the trader on the floors are hurrying to the nearest computer to find out if the stochastics are showing oversold or if MACD has a price divergence. They honestly don't care.

Forex trading - fundamental analysis why most traders lose using it

Today we have better news resources than ever before to help Forex traders but the fact is most traders fail to use it correctly and lose.

Let’s look at Forex fundamental analysis in more detail

What is Forex Fundamental analysis?

Quite simply it studies all the facts in relation to the supply and demand situation of the currency and these are numerous and include:

Political factors

Interest rates

Economic health of the country

Economic policy

And many more

These are the facts and all traders see them but they draw different conclusions from what they see - this is the problem for any Forex trader.

The major problem is working out how traders view the facts and how much they have been discounted.

A simple equation for market movement is

Economic Fundamentals + Human perception = market movement

Firstly, in today’s world of lightening communications the fundamentals are discounted in seconds so trying to trade off news stories is doomed to failure.

Secondly humans are not creatures of logic – they are ruled by greed and fear - these emotions push prices to far in either direction – up or down.
Ever wonder why a market collapses in the midst of very bullish fundamentals, or rallies when the news could not be more bearish?

This is human psychology at work and the emotions of greed and fear taking control of markets.

In Forex fundamental analysis the facts are their for all to see but the way they are perceived makes trading fundamentals hard, if not impossible for most traders.

The facts are there for all to see but as humans are not logical they are emotional beings and trying to trade facts is hard especially when they are discounted in seconds.

Is there a better way?

The best way to trade for Forex traders is not Forex fundamental analysis but technical analysis.

Forex technical analysis simply assumes all fundamentals will show up in price action as they are discounted in seconds – the technical analyst knows that human nature is constant and this will show up in repetitive price action.

The trader using Forex charts does not care why prices move he just wants to make profits when they do and looks for the right formations.

While technical analysis may seem simple its logic is sound, as it takes into account both parts of the equation for price movement – human psychology and the economic reality.

If you are considering Forex fundamental analysis then beware of the pitfalls and try technical analysis instead.

Trading analysis pitfalls

It is very easy for a trader to go wrong in the area of trading analysis, just because he/she happens to be one of those who believe that they must indulge in very complex analysis before they can catch that winning trade. This so wrong and very many find this out the wrong way as they loose their life savings and the sweat of their labour is wasted.

When carrying out your trading analysis you must first of all have one thing at the back of your mind...KEEP IT SIMPLE STUPID (KISS). I bet you have heard that word before and simply overlooked it, but 80% of traders are found wanting when it comes to applying this concept. Trading can only be as difficult or as easy as you make it...you do not need a fancy graph with multiple moving averages crisscrossing each other like a bad network of roads before you can catch a winning trade.

There is no need for a complicated analysis because all you are trying to look at is simple human behaviour to demand and supply. There are so many decent books that will show you how to use indicators and overlays and how the compliment each other. Many traders do not understand that there is a way to group the use of indicators and they will be simply mirroring too many data and end up more confused than ever.

A simple trading analysis method that involves the use of stochastic, Relative strength index (RSI) and MACD (Moving Average Convergence Divergence) and with one overlay like Bollinger band works very well. So remember keep it simple and free of complications as much as possible.

Learn stock technical analysis history

You need to keep track of technical analysis history for one reason that it is the best way by which to beat the market at its own game. By studying financial charts which provide information on the status of the market, one can technically analyze whether the current market situation is profitable or not. Recent Federal Reserve and other such academic studies argue that technical analysis history is of more importance to traders than fundamental analysis.

This sort of analysis is basically a newer version of security analysis. Here I do not refer to security as in the security of a house or a home; we are talking about securities as in stocks and shares. This kind of analysis makes use of all the technical and related information that you can lay your hands on, if you want to play the financial markets and succeed at doing so. The point is to know how this ensures that you are able to make more money while dealing in stocks and shares, not to forget the dealings that you might have in currencies of the world.

One major advantage of technical analysis history in the financial market is that you are able to know the actual trend that a currency has been following in the recent past. For instance, if you have been watching the movement of the Japanese currency in the last forty-eight hours (when working in the financial market, you realize, that it is better to analyze in terms of hours and not days) you might observe that it has not been steady for a long period of time. On the contrary, it has shown a lot of erratic movement. Now the point is that a good broker may want to find out why the movement has been so erratic. There might be a host of other reasons, but what is important here is the impact of other currencies on this particular one. This is where a thorough knowledge and a deep look into technical analysis history helps.

Most financial consultants are able to keep track of their buying and selling options based on technical analysis history of the market. This is made easier by the internet and all the associated facilities. There are specific sites available that can cater to the needs of those who are interested in keeping track. If you are an investor in currencies, you are sure to need the services of those who maintain these websites. You need to know the movements of the currencies in relation to the political and economical situations in the various countries.

It is worthwhile to remember that providing technical analysis history is the best form of customer service that can be provided. Since this is the kind of guidance that is required by both amateurs as well as professions, service providers of this kind of service will always be in demand.

Forex trading education - two types of trading analysis

Alright so you've decided you want to trade Forex and you want to learn the basics; regardless whether you're trading solo or with an autopilot trading system; this is always a good thing. Knowledge is power right? No it won't power your lamp... put that down and get in the corner.

Okay so the first type is pretty basic, well they're both relatively basic but this one is much easier to understand; it's called "fundamental analysis". Fundamental analysis is essentially looking at the market through economic, social and political forces that affect supply and demand. Cutting through all the babble it basically means you're figuring out what country's economy is doing good and which country's economy blows. The concept is when a country is doing well; their currency will be doing well too.

The second type of trading analysis is known as "technical analysis" (maybe you've heard of it?). This is the study of movement; people look at charts that list the historical price movement and based on the price action try to determine whether the price will go up or down. The goal is to look at charts and find trends and patterns to help you capitalize on good trading opportunities. Simply put, the most important thing you will learn with technical analysis is the trend; maybe you've heard the saying "the trend is your friend". You're much more likely to profit when you can identify a trend and trade in same direction.

So which do you use and which is better? For some reason people feel like they need to limit themselves and pick one; I don't get it. When someone tells you to use just one ignore them! Both fundamental and technical analysis have their advantages so why not use both? That's just good logic as they both affect the market.

Futures trading online analysis

All sites that offer futures trading services also have extensive analysis available for market players as well. These services are offered along with the downloadable trading platforms available to subscribers to the site.

Analysis of futures gives information to hedgers and speculators regarding the world markets. Analysis is synthesized from global market performance and takes into account various factors that can affect prices, including weather, reports on stock exchanges and current political news. Since the futures exchange is so dependent on information and inherently sensitive, it requires a lot of understanding to make the right decisions. If you are not so confident on winging it on your own through the futures trading portals, then what you need is current, good analysis that will help you with your decisions.

Most online trading platforms offer these to all their account holders except for those who have taken the discount trading option. The analysis is offered in both text and audio formats, and is tailored to the particular futures you choose to trade in. The analysis is vital for any investor seeking to enter into futures trading since they are more sensitive to extraneous factors than any other kinds of stock, with the exception of actual commodity trading.

It is important, therefore, when choosing your online trading brokerage, to make sure that they offer analysis as well as part of their services – the analysis can be part of the trading platform or be given to the investors through 24-hour customer support executives who will provide analysis to those who request it. It is wise to go through the account options and the services they offer carefully before making a leap into futures trading, since you are investing a lot of money in the market.

Forex trading - technical analysis can help you trade better

As a beginner there are two types of trading strategies you can adopt. The strategies are fundamental analysis and technical analysis. Technical analysis is a great tool to trade in the market and achieve success but I have always almost heard that people say that they had tough luck with charting tools and technical analysis software.

The truth is that you should know how to use the software effectively and then you can achieve success with the technical analysis. There are errors that people make which makes them think that technical analysis is not helping them.

The basic error traders make is that assuming that technical analysis will help them reach answers to what is the price is going to be. That is not going to happen, the technical analysis will always tell from the price trends and the historical trading patterns that yes at this level there will support and there may be levels where you can buy or sell. Never assume that there is going to be a price prediction. Use accurately the technical analysis and you will be making an informed decision about the prices. Also, make sure that you use breakout to your advantage and trade accordingly to make money.

As always the best strategy is to keep it simple when comes to using indicators. Stick to basic indicators and you will be on track. Use 5 or 6 or ten indicators and you will be confused as to what is happening to the charts at any given point in time.

Forex charting is simple tool to help you benefit but do not bend it to suit your decisions and never try to evaluate your past strategies from the forex charting. This is known as curve fitting and it will do more harm than good.

So make sure to use forex charting and technical analysis to your best advantage based on the rules above.

Forex trading - technical analysis importance

There are 2 main approaches or methods to forex trading; they are technical analysis and fundamental analysis. This article will discuss the relevance and importance of technical analysis.

Technical analysis essentially looks at the past performance and history of a given forex currency. It is reliant upon statistics and data to determine history, trends and patterns which indicate future market activity. Technical analysis essentially ignores the markets feeling or value towards a currency, and bases decisions solely on statistical data.

As the forex market is reasonably straightforward (minimal variables in comparison to the stock market) it lends itself quite well to technical analysis. The history of the value of currency pairs is a matter of statistical data and can be easily determined and understood. Supporters of technical analysis claim it is the only true way to understand where the market is heading, and predict the next crucial trend. Further to this there is the belief that without technical analysis it would be near impossible to understand or predict where the forex market is heading, and to act upon anything other than instinct.

Essentially the more data you have access to, the greater the probability of making an informed decision in the marketplace. With recent developments in forex trading software, the management of this statistical data has become extremely efficient.

To further understand the difference between technical analysis and fundamental analysis take this example of 2 people buying ice cream. The person favoring fundamental analysis would enter the ice cream store, and try 5 different flavors of ice cream to determine the intrinsic value of the ice cream. The person favoring technical analysis would sit outside the store monitoring who was purchasing which ice cream, and base his decision on that.

Conclusion

Obviously it will in the end come down to preference over which method of analysis you rely upon more heavily in your forex trading ventures. Technical analysis should be your first consideration to gain a broader understanding of market history and market predictions.

Technical analysis in forex

Technical analysis may be the most common and successful means in making trading decision and analyzing Forex and commodities markets. It is different with the fundamental analysis. In technical analysis, the trade applied only to the price action of the market. Here, the price action is ignoring the fundamental factors. Different with fundamental data that is often provide long-term forecast of exchange rate movements, technical analysis will gives shorter-term price movements. It also can set when to stop loss and targeted profits. This way is more useful for traders.

The deriving support and resistance levels are one of technical analysis usable. The market will tend to trade above its support levels and trade below its resistance. If a support or resistance level is broken, the market will expect to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.

Technical analysis is consisting primarily of a variety of technical studies. Each of those is can be assumed to generate buy and sell signals or to predict market direction. This technical analysis gives you simple way in analyzing the trading process, as well as its chart of trading. On GCI's integrated charting system, for example, showing red support line that can be drawn by clicking the trend then you can draw a line of the trade movements.

The other analysis in Forex is fundamental analysis, you can learn more at my next article, or you can visit at my blog.