Technical analysis skills will help you learn the character of price movements. The more you understand with technical analysis. The better you will be able to recognize opportunities for extraordinary profits in the price market movement.
Therefore, you must have a basic technical analysis first. Technical analysis is included in the most common type of foreign exchange analysis. There are so many traders using this type of analysis.
Another type of analysis is a fundamental analysis that seeks to analyze the value of a currency based on the economic conditions of its home country, financial market situation, or other outstanding news and rumors. But how to improve trading skill-based technical analysis? Keep reading this article will shock you.
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Technical analysis methods
Technical analysis is a method of forecasting/estimating price movements by looking at historical price data that occurs in the market. Price data from past history is the most widely used type of data in the analysis process.
Although there are several other types of data in the analysis process such as volume and open interest. But the bottom line when using any technical analysis method is to return to its theoretical basis, which methodologically has proven performance for a significant period of time.
After finding a suitable trading system, then you can look for other techniques that can combine with existing trading methods.
Principle of Technical Analysis.
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There are three things that underlie technical analysis. The three bases are:
Market Action Discounts Everything.
Meaning: the price seen on the chart has illustrated all the factors that affect the market.
One advantage of using technical analysis is that price action tends to reflect information circulating in the market. Whether it’s rumors or sentiments.
Thus, the thing you need to make a decision is what you can see from the price movement itself. You don’t have to worry about news or rumors.
Prices Move In Trend.
Prices do not move randomly, but always form a certain pattern (trend) that will continue until there are signs that this movement pattern stops and changes.
In other words, prices move in a trend, so price movements tend to move in a certain direction (trend) until one day the trend will end. The direction can go up, down, or just flat. By knowing market trends, you will be able to make the right decision.
History of Repeats Itself
It means: there is a strong tendency that the behavior of market participants in the present will give the same reaction as market players in the past, in addressing various information that affects the market; so that the motives of the movement that once happened, can be repeated again.
History always repeats itself. The technicians (designation for traders “bowing” technical analysis) find that price movements tend to form certain patterns. These patterns also have a recurring tendency from time to time.
Thus, the recurrence of these patterns can be used to estimate where the direction of the next price movement based on “history” is recorded when the same patterns appear in the past.
Technical analysis can be very subjective. Two analysts who look at the same chart may have different views. This can happen because both have different styles. But apparently, this subjectivity can be anticipated on the basis of solid technical analysis.
The important thing for you now is to understand the basic principles of technical analysis first, so that later it will be easier to understand more complex and sophisticated technical analysis. After you successfully complete this education module, hopefully, you will be better prepared to become a trader
Easy Ways to Perform Forex Technical Analysis.
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You might be impatient to know what are the important steps in doing technical analysis.
- The basic concept of forex technical analysis.
- Forex trendline concept.
- The concept of forex support and resistance trading.
After you understand these three things, then you can do simple steps to do technical analysis as well.
Get to know the trends that are taking place.
The first step you have to do of course is to open the chart, then see the ongoing trend. You can choose which trends you want to follow and use.
Get to know the ongoing trend. starting from long-term trends, then retreating to medium-term or short-term trends. Even though you may choose which trends you will use, it is advisable to look for a major trend and follow it, because the trend is your friend.
If you have identified the trend, the best strategy for you is to take a position (transaction) that is in line with the current trend. If likely the current trend is an uptrend, then you should look for opportunities to buy. Conversely, if the trend is a downtrend, hence look for sell opportunities.
Determine Support and Resistance.
The second step is to determine where the support and resistance levels are.
Look for buy opportunities in the support area or sell in the resistance area. Of course, you should not forget the first step, which is knowing the trend that is going on, which is taking a position that is in line with the trend.
In other words, if you see a trend when it’s an uptrend, then look for long positions in the support area, and vice versa.
You can also use support and resistance levels as a warning if it turns out that prices don’t move as you expect.
If for occurred break support even though you have previously opened a buy position, then a break of that support should be a warning to cut-loss
Use the Moving Average.
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The third step is to use the moving average (MA) indicator to recognize the current trend.
If you have difficulty drawing a trendline, you can see the MA movement to help you identify trends. Simply put, if you see the MA moving down and the price moves below the MA, then the current trend is a downtrend.
Conversely, if you see the MA moving up and the price moves above the MA, then the trend at that time is an uptrend. In addition, the MA also has a function as support and resistance.
If the MA is above the price movement, it functions as a resistance. If the MA is below the price movement, its function is as support.
Filter with Oscillator Indicator.
The third step uses the Oscillator Indicator filter, this can give an idea of whether the market is overbought or oversold.
Overbought conditions mean the situation when prices are considered high enough at that time. This condition is often followed by a decline in prices.
Conversely, oversold conditions mean that prices are considered low enough at that time, and are often followed by rising prices. When the oscillator indicator shows an overbought indication, all you need to do is wait for the sell signal confirmation. Conversely, if the oscillator shows oversold indications, wait for a buy signal confirmation.
But you need to note that it is not always overbought or oversold conditions followed by reversing the direction of price movements.
There are times when the indicator continues in the overbought or oversold area for some time, but the price continues to move in the previous direction. To work around this, you must adjust the signal provided by the indicator with the ongoing trend.
In an uptrend, look for only buy signals, whereas in a downtrend, look for only sell signals. This method is relatively safer. But don`t use too many indicators, it will make confuse and possibly make slow responding to your platform.
Put your stop loss and taking a profit.
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The last step puts your stop loss level and target profit from the transaction that you make.
In determining the stop loss and profit target, you must not forget the risk-reward-ratio rule, where stop loss (risk of loss) should not be greater than the target profit. This rule must not be violated.
You also have to determine how much volume of transactions you are doing. Adjust to your trading plan. So, if you facing a loss, the risk does not exceed your risk tolerance.
Technical analysis techniques
The technical analysis determines decisions by relying on technical trading tools. Broadly speaking, this technique ignores fundamental news and replaces it with indicator trading tools.
Some important things that become the main concern in technical analysis techniques are trend lines, support, and resistance, simplicity.
Knowledge of support and resistance is a basic lesson in forex, and trend lines are the implications of a trend that occurs in the market. And its simplicity makes analysis easier to understand, so trading plans can be adjusted more easily.
Technical analysis is a market approach method using trading tools. This method is widely used by almost all forex and CFD traders and other financial markets such as stocks and crypto.
But whether this method is truly profitable, it requires a skill upgrade with an emphasis on experience and disciplined trading evaluation. Not only for dummies but even professional trading strategies do not negate technical analysis of the way they trade.
Are you ready to start trading?