Technical Analysis

admin — Sat, 07 Nov 2009 04:40:31 +0000

For Bigger Profit Potential

If you have read the section how and Why Prices Move you will understand that knowing the fundamentals does not guarantee currency trading success – You need to be able to measure trader psychology as well.
Forex technical analysis helps you see both and gives you the overall picture.
Many traders don’t fully understand the advantages of technical analysis – and refuse to believe that it works here, we will show you how Forex technical analysis gives you the complete picture to help you trade successfully.

What is Forex Technical Analysis?

It is simply defined as the study of price action through the use of charts – for the purpose of identifying price trends and if used correctly – it works.
Forex technical analysis uses the following equation:
Market Perception (trader psychology) + Fundamentals = Price Movement
All Forex technical analysis does is assume that all known fundamentals are quickly reflected in price action (and in the 21st century with instant communications this is truer than ever) – so it simply concentrates on following price action.
Price action reflects all the fundamentals, and more importantly, how all the participants in the Forex markets perceive them.
Traders who study fundamentals claim technical analysis can’t work – because you need to know and study the fundamentals, to know where prices are going – this is simply not true.
Some of the largest price moves in history, have occurred with little or no change in the fundamentals.
It’s a fact that markets ( not just Forex Markets ) are most bullish at market tops and most bearish at market bottoms.

Why?

Quite simply human psychology was at work – and Forex technical analysis studies this and the fundamentals together.
Learn to use technical analysis, and you will see the reality as it is – rather than listening to the opinions of others or letting your emotions get involved.
You are in effect trading the truth and the truth is:
The market price itself is the correct true price – not what you or anyone else thinks it should be.
Forex technical analysis makes the following 3 assumptions:

1. Markets Discount

All fundamentals show up quickly in the price action, when you use technical analysis.
You are therefore studying the fundamentals, as they are – and of course, you are seeing how the participants perceive them at the same time.

2. Trends Persist

This is obvious by simply looking at any Forex chart.
Forex technical analysis also assumes that a trend in motion is more likely to continue than reverse.
Your aim is to lock into these trends and trade them for profit.

3. History Repeats

The core belief of Forex chartists is that technical analysis works because what has happened in the past, will happen again.
Human behavior repeats itself – as human nature never changes Price patterns simply reflect shifts in human psychology, we can therefore assume that certain patterns and trends will repeat themselves – time and time again.
Trading the Odds with Currency Technical Analysis
In gambling, the aim is to get the odds in your favor – and in trading; your aim should be to trade only when the odds are in your favor.
Just like the successful gambler you won’t win very hand – but you will win more than you lose and by constantly trading the odds you will achieve currency trading success.
If you have read the section Forex Myths you will understand that technical analysis is an art rather than a science.
You need to devise a Forex Trading strategy that uses technical analysis the right way to enable you to build long term wealth.

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Technical Analysis

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