Preparation is one of the key components of success in any walk of life. This transcends every industry you will ever be involved in and every activity in which you will engage throughout your lifetime. Forex trading is no different. Adequate preparation takes different forms in each profession. Technical analysis is at the core of any well prepared trader in the forex industry. Through this piece we will identify the key reasons behind undertaking technical analysis and why it plays such a vital role
What is Technical Analysis?
Especially as a new trader, it may be tempting to dive right in without understanding or sometimes without caring what technical analysis is and much less how to engage in it successfully. When we analyze the past data though, we can note that a huge number of first time traders are loss making.
On the most basic level, this is precisely what technical analysis is. The study of past pricing data within the market and conducted through a variety of charts featuring lines to gauge pricing changes and a variety of other technical indicators.
All forex brokers will provide the platform to allow traders to engage in an array of technical analysis. Whilst it is not the only form of analysis, it does the most to identify past trends clearly and assist in visualizing prevailing trends. Every platform will provide a range of forex trading tools to work in tandem with your technical analysis and build the clearest possible view of market data.
Why Technical Analysis Plays Such a Key Role
We have already identified that technical analysis is the most comprehensive and clear method by which you can gain factual data on the market history and identify patterns within the market. For everyone engaged in online foreign exchange trading at any level, this information can make the difference between profit and loss.
Technical analysis can help you identify buy and sell points in the market and establish the foundation of your trading philosophy. Setting up this type of forex trading guide to manage your behavior will have a big impact on your bottom line.
While you may engage in any number of complex or attractive forex trading techniques you have learned, basic human principles are still at work within the forex industry. This means that history and trends do repeat themselves. Conducting and understanding a technical analysis puts you, the trader, in a highly beneficial position to identify these trends as they play out.
Things to Consider When Undertaking a Technical Analysis
When undertaking a technical analysis, there are some key factors you need to consider from the outset. The most important of these is which indicators to use. If you are using the best broker for trading forex that you can find, you will notice there are almost too many options when it comes to indicators and setting up your TA charts. Especially if you are still finding your feet as a trader, starting simple is best. If you can read and understand the following list of key indicators, you will be one step closer to making the best forex investment possible.
• Moving Averages (DMA & MACD)
• Relative Strength Index (RSI)
• Bollinger Bands
These are the most commonly used indicators which can greatly assist you in identifying trends. It is well worth your time to invest some hours of study in learning how to plot and interpret these indicators as a forex trader.
Though there are a variety of methods when it comes to analysis in trading, it is clear to see that technical analysis is the most pivot when it comes to the bottom line. Through successful study and implantation of the key points derived from technical analysis, you can find yourself taking one step further on the journey toward successful forex trading.