The Importance of Technical Analysis on Forex
Technical analysis or the art of making a forecast based on historical prices has attracted many traders in the past. And, it keeps drawing plenty of them in the 21st-century Forex market.
Forex trading as we know it today is mostly technical. Even fundamental traders, most of the investors, have a few technical setups that consider before taking a trading decision.
Trend Indicators and Oscillators
Luckily, trading platforms like the mt4 or mt5 come with a predefined set of technical trend indicators and oscillators that help in technical analysis. As the name suggests, trend indicators follow the market closely to spot different trends that may appear.
Almost all of them are projected on the actual chart, right where the price action is. Traders use them to buy dips in bullish trends (rising trends) or sell spikes in bearish ones (falling trends.
Oscillators, on the other hand, appear on a separate window, at the bottom of a chart. They typically have overbought and oversold levels, and traders react when the oscillator reaches such extreme levels.
But technical analysis is more than trend indicators and oscillators. Traders like to think of it as an art to forecast levels on the right side of the chart based on what happened on the left side.
After all, the saying goes that what’s on the left side of the chart is free information. Hence, traders use the free information already available to create trading setups that result in a trade.
Besides trend indicators and oscillators, traders built in time trading theories that still work today. Even though most of them were developed on the stock market many years ago, when online trading was inconceivable, they work on all trading environments.
Part of any trader’s Forex education, trading theories shaped one of the most successful traders and trading strategies of our times.
Traders accustomed with Forex glossary terms already heard of the Elliott Waves theory, W.H. Gann, Gartley, harmonic trading, Drummond, etc., to name a few. Technical analysis on the Forex market is so complex that the field evolves every day.
Because the market change as a result of human behaviour, traders must change too. More precisely, their approach to trading changes, and, with that, the strategies and how they apply trading tools like the theories mentioned earlier.
The volume indicators offer clues about the positions taken in the market. Because the retail trading size is so small in comparison with other market players, regular traders focus on aligning on the same side of the market like the big guys.
One way to follow “smart money” and gain insightful Forex analytics is to use volume indicators. However, they should be treated with caution as they represent just the volume traded at the Forex broker, not the entire currency market.
Any Forex for beginners guide must cover technical analysis concepts. However, technical analysis alone is not enough to make the most of the Forex market.
The fundamental analysis comes to complement technical analysis, and things like the economic calendar are regular trading tools in everyday trading. The next article will cover the importance of the economic calendar and how to make the most out of it.