How to Use FOREX Technical Analysis
Using FOREX technical analysis is one of the most popular ways to trade the market. There are two main ways to trade the FOREX market. You can use fundamental analysis or technical analysis. With fundamental analysis, you analyze the underlying currency itself. With technical analysis, you just look at the price data of the currency pair to make your decisions. Here are a few things you need to know about technical analysis and how it is used in the FOREX market.
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Technical Analysis
People that use technical analysis to trade the FOREX market are always looking at charts. FOREX charts show you a graphic illustration of how price has behaved over a certain period of time. There are a number of popular charting tools out there to use, including the popular MetaTrader platform. With these tools, you can pull up a chart of any currency pair that you want on multiple time frames. You can look at the 1 minute chart and see a detailed representation of what the price has done on a minute-by-minute basis. You can also look at 1 hour charts or even up to a month of price data.
Patterns
The most important thing that you are looking for with technical analysis is a pattern. You are analyzing charts for hours and hours looking for a similar pattern. Price tends to behave in similar patterns at different points. Therefore, if you can successfully notice a pattern before it happens, you can accurately predict what the price is about to do next. While nothing is foolproof, you can increase your odds of success on a trade greatly by using a good technical analysis strategy.
Indicators
With all of the FOREX trading platforms out there, there are a number of indicators that you can use on the charts to help you accurately identify circumstances that may be favorable trades. The charting software will come installed with a number of indicators already on it. You can combine them to create your own trading system or you can get help from someone else. There are even several custom indicators that are available on the market to purchase separately. Indicators can help you analyze the market and notify you when a trade opportunity is present.
Expert Advisors
Another popular use of technical analysis is when traders utilize expert advisors. Expert advisors are a software program that plugs into your trading platform. It analyzes the price data for you and then identifies profitable trade patterns. It will even place the trades for you without any intervention on your part. It will open the trades, place the stop loss and take profit values and then close out the trade for you.
Vs Fundamental Analysis
Those that use fundamental analysis in FOREX play close attention to the news. They watch for important events that could change the price of the currency pair. Those that believe in true technical analysis believe the price of the currency pair is all you need. Therefore, a balanced approach, with a little technical and fundamental analysis, is usually the best way to go.
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