Once you start trading Forex more frequently, you will realize the importance of using technical analysis as one of your go-to tools for successful trading. I know, you are already aware that there is no way to accurately predict the way the market will move in a given time unless you are following the data releases, reading the current news, and doing your own market analysis.
All of these steps are vital ingredients to a successful trading method and technical analysis is one of them as well. You don’t have to be a professional or an experienced trader to use technical analysis to your advantage. All it takes is being focused on the task ahead of you and knowing what you need to look for when you are doing your analysis.
What is technical analysis?
The shortest and simplest definition of technical analysis is examining the past performance, identifying the trends, and using that information in order to predict the future movement of the market. Traders who use technical analysis in their everyday trading firmly believe that the history repeats itself and that they will be able to make a correct assumption as to where a trend is heading.
So, the final goal of technical analysis is not even focused on the current state of a trend, but solely on the steps you will take in the future, once you find and identify a pattern of movement. Yes, technical analysis requires patience and focus, but it is definitely one of the best ways of analysis out there. Learning how to apply it to your Forex trading will be valuable.
How to use technical analysis?
After you collect all the data you want to analyse and put it in front of you, you need to start examining the history of a certain movement. Besides these charts, you will also need additional information about the reasons the trend you are studying was moving in a certain direction. Therefore, combining the technical with the fundamental analysis is a must if you want to be correct with your predictions.
So, how do you properly use technical analysis for successful trading? First of all, you need to start with the last six months of data and information about a trend you are examining. Yes, even if you are a day trader or you only use scalping techniques. Having a solid insight is a must and even though it might look like a daunting job, it simply has to be done.
Secondly, after you have examined the charts and found the movement you were searching for, you need to compare it to the data about the volatility of the market at a given time. Perhaps there was a major event that made a trend act unusually. Or maybe an economic data release? And finally, once you have everything laid perfectly in front of you, you are ready to use those identified patterns in your future trading.
Technical analysis can be very precise and mastering it is not so hard. Of course, you need some time to learn how to conduct it in the best possible manner, but eventually you will realize that history truly repeats itself.