By analyzing the Past
- The best traders don’t discount one or the other but understand that having an understanding how the fundamentals influence the market sentiment gives him/her an edge over those traders who don’t.
- Technical Analysis is the simplest and most accurate way of trading the Forex market.
- “The numbers don’t lie” – All available information and its impact on the market, are already reflected in the currency’s price.
- Prices move in the trends – the foreign exchange market is mostly composed of trends and therefore the place where technical analysis can be very beneficial.
- History repeats itself – over time, certain chart patterns become consistent, predictable and very reliable. The question is seeing them.
Prices move in trends
The traders who don’t believe this obviously do not need to implement a trading methodology on technical analysis. But, analysis has shown that those who trade “with the trend”, hugely improve their chances of making a profitable trade.
Finding the prevailing trend will help you to become aware of the overall market direction and offer you the better visibility, especially when shorter-term movements tend to clutter the picture.
How does technical analysis help to determine what the trend is and how to trade with then trend versus against it?
Even though, you learn how to use and read various technical indicators to identify a long-term trend, spot predictable chart patterns and use specific rules to enter and exit a high-probability trade. And even though all this involves methods, sound logic, formulas, parameters, data, and research, these technical indicators, by themselves, are not the Holy Grail of Forex trading.
It takes self-discipline and emotional control to stick with the trading following through the inevitable market ups and downs. Keep in mind, and good technical traders expect ups and downs.
The Objectives as a Technical Trader
To figure out the price action of a currency pair. Price is the main concern. If the EUR/USD is at 1.2225 and goes to 1.2020, 1.1980, 1.1940- the market is in a downtrend. Despite what every technical indicator might predict, if the trend is down, stay with the trend. Indicators showing where the price will go next or what it should be doing all are useless. A trader should only be concerned with what the market is making, not what the market might do. The price shows you what the market is doing.
Always remember that technical indicators are only giving you confirmations based on what the market is showing you. So listen to the market and let it show you which method, strategy or techniques you should use.