The usefulness of technical analysis in Forex

The usefulness of technical analysis in Forex

Data analysis is important to make profits in Forex. Instruments and analysis methods vary greatly from one trader to another. They mainly depend on the trading strategy used by the latter. However, the players all agree that Forex technical analysis is one of the most profitable in the short and long-term methods .

The importance of technical analysis in Forex

Forex is a huge market where currencies are traded daily . Millions of traders buy and sell these currencies trying to make profits. Those interested in the evolution of currency using the method of technical analysis to trade in the forex market .

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Introduction to Technical Analysis

Technical analysis is an empirical approach that allows to accurately determine the direction and evolution of currency . It is believed that this method was introduced in the 19th century by Charles Dow , but the process is much older than this period. In fact , the Japanese were already using a similar method to anticipate the evolution or lower rice prices . This technique is widely used by institutional investors , as it allows us to understand and anticipate the reactions of individuals faced with more or less favorable external circumstances.

Usefulness of technical analysis

With technical analysis, the trader knows about how market participants react to fear, despair, or in case of good news. Redundancy economic crises and market crashes is proof that investors repeat the same mistakes and therefore they reason almost always the same. When a trader has identified the logic of this reasoning , he commits himself fewer errors and can earn more money.

How to perform a technical analysis?

Technical analysis includes many mathematical and logical processes that are interpreted to explain and anticipate the evolution of currency .
Methods of technical analysis
Among the methods of analysis of the most common , there may be mentioned :
the chartist analysis ,
modern analysis ,
fundamental analysis.

The chartist analysis is to explain the current trends using charts. The most used for this purpose are the candlestick charts and trend lines . Modern analysis uses mathematical indicators to interpret the evolution of the course. The most common are the ETE ( shoulder – head – shoulder) , double bottoms and Fibonacci retracements . With indicators of modern analysis, better appreciate the underlying trends , trends oversold and overbought and risks of price volatility. Fundamental analysis is , meanwhile, a method of comprehensive analysis itself . It is used in addition to the technical analysis. The results of fundamental analysis are useful because they allow us to understand the macroeconomic trends .

Some technical analysis tools

Experienced traders always use some tools to improve their technical analysis. The MACD indicator is essential eg for the detection of differences in exchange rates . An appreciation of the differences also influence trading strategy. To understand the conditions of purchase and sale on the market , traders use Bollinger Bands . Other indicators like the stochastic and Elliot waves are essential in technical analysis . With experience , these elements are combined to better assess price developments and adjust its strategy accordingly.

Make trading with technical analysis

Where technical analysis is done well, it highlights a number of trends that the trader takes into account to place orders for purchase and sale . For example, if the trend is up , he earns more by placing sell orders . If there is any trend , it may choose to close their positions and come back later . Technical analysis also helps to identify the supports and resistances. Based on these indicators , he knows exactly where to place the sell order with minimal risk of loss.

Limitations of technical analysis

However , technical analysis is not everything . A trader who combines eight consecutive wins by this method may be a good analyst, but he can lose all that money on a position. Therefore, in addition to analyzing and understanding the evolution of course , we must learn to keep his cool . Otherwise , technical analysis will not help .

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