How Forex Differs with Technical Analysis
The goal of technical analysis is certainly not to try to be right all the time, and even being right almost all the time is impossible, what we’re after with technical analysis basically is to be right more than we’re wrong, right enough to make more from our winning trades than we lose with our losing trades, and this yields the profit that we’re after.
The better our technical analysis, the better we will do, although there are other things that go into this as well, taking into account changing fundamentals, using proper money management, using stop orders properly, and even using our skills and experience to guide our trades apart from any specific analytical direction.
How forex trading really differs from other types of trading is that with forex, there is a lot of background noise so to speak with the signals, a lot of currency being bought and sold that has nothing to do with trading.
In comparison, with stocks, all of the buying and selling is ultimately speculative, people are looking to buy and sell to make a profit, whereas with forex a lot of it is just a matter of the supply and demand of converting currencies.
This does make the forex market much more stable, but in a sense, less predictable as well in the short term. It still can be predictable enough, provided that you have the right skills to interpret the signals, and the market is far from random here, in spite of the higher level of what we could call random noise.
The more people speculate on the forex market, the less of a role this market noise plays, and the forex market has seen a lot more of its trading being given over to speculation in recent years, a trend which is continuing.
Some newer traders think that interpreting forex signaling is an easy task that anyone can do without much problem at all, but the truth is, this does take some experience and skill development to get good at, and you never want to underestimate what is involved in acquiring the minimal amount of skill needed to be successful at anything.
Charting Is Pretty Much Mandatory for Successful Forex Trading
In order to be a successful forex trader, you’re going to have to be using all of the tools in your toolkit, to look to predict where currency markets are headed. This is what all trading is about, to be able to predict something and be right more than you are wrong. This does not mean you have to win more trades than you lose necessarily, but the amount of money you win has to be more than the amount you lose, otherwise you are losing money on balance.
If other traders are using charting, and you are not, well this is going to be like trying to trade with one hand behind your back, and the chances you will do well over time will be greatly diminished. Playing hunches or just looking to trade the news with no regard to trading patterns might prove successful in the short run, but without charting, it’s extremely difficult to achieve long term success.
This is why every forex trader that is any good at all at it uses charts and uses them fairly well. It does take time to become proficient at reading charts, and some traders are better at it than others, and a lot of the things you learn, most of the stuff, is simply going to come from experience, not from watching some video or other and having the hidden secrets of all of this revealed to you in simple fashion.
A lot of the education here will come from looking at a lot of past patterns and picking out some ones that tend to work, although there are some shortcuts you can learn to at least get you pointed in the right direction.
Trading patterns are simply price and volume movements over time, but from this we can devise a number of different ways to analyze the data, in a visual format. Being good at pattern recognition can really help here, although a lot of talent here isn’t really required. What is required though is a dedication to the task along with the necessary patience to give yourself the opportunity to learn enough.
Charting skills developed though other forms of trading will help you here, and while there are some particular considerations with the behavior of currency markets, knowing how to use charting in other markets will really help you in using them with forex trading. However, if you have never used charting before, well everyone started somewhere.
Using Technical Analysis to Trade the Forex Market
Education is very important with forex trading, as it is with most things actually, and if you don’t know enough about what you are doing, you probably will not be successful. Those who are already experienced with forex trading and already know what they are doing, or even if they know a great deal about what they are doing, will still always want to look to get better at charting.
There is no place you ever get to where you can say, well I’ve mastered this, there’s nothing left to learn, as you can always get better at this, even though the benefits of more study will tend to become more and more marginal as your skill level and success increases.
It’s not that difficult to become comfortable with some of the basics of technical analysis though, and this is what new traders need to focus on the most, just like if you were looking to learn anything new you’d start with the basics and then move on to more sophisticated material.
So knowing what candlesticks represent, and the different types that you will see, along with looking at the correct time periods that match up with your desired timeframe is a good place to start.
There are some simple indicators like support and resistance lines that are going to apply to all trading strategies, as the price of things move up and down and often times this happens in patterns. Knowing what a breakout looks like, and being able to predict well when something is really breaking out to the downside or upside is another important basic skill.
There are a lot of technical indicators that traders use, and it’s good not to try to understand too many at first. Just starting with something like a simple moving average would be a good place to start, and as you move along, you can try out other indicators to look to understand what they indicate and how they might be used to plan your entry and exit points, which is what this is all about.
Moving averages are one of the best indicators there are actually, and this is a great place for new traders to start with. Moving averages look to filter out some of the noise, and can provide some good signals all by themselves when used properly. You don’t want them to lag too much, or provide too many signals, and the key is to find the right balance.
It’s good to both look back at charts and see what you might have done, and also get experience in real time making decisions based upon charts. There is no substitute for real time charting experience actually.
There is a lot to learn here, and some people think this is all easy and simple, but it is not. It’s a lot of fun though and it’s certainly better to have this more complex, where the more you put into this, the more you’ll get out of it.
The most important thing here is not to rush this or be too eager, to look to learn a little more each time and work your way toward a sufficient understanding of how to predict market movements with charts, and then build upon that as you progress further.