The old clichés that “we learn from our mistakes” and “history repeats itself” are very evident in the field of Forex technical analysis. This type of learning for decision making is very well known among the Forex traders and used extensively around the world. Let's examine some of the fundamentals of this type of in depth studying.
Prices move in trends; and the traders who don't know this fact obviously have no need to implement a trading methodology on technical analysis, they haven’t even realized yet. But, over 100 years of research has shown that those who trade "with the trend", more often than not, greatly improve their chances of winning in the forex markets (i.e., making a profitable trade).
Many times finding the prevailing trend will help you become aware of the overall market direction and offer you better visibility--especially when shorter-term movements tend to clutter the picture. And many times following the trend will bail you out of an initially less than great entry point.
Based on the fact that the Forex is available 24 hours a day and almost every day of the week, there is a tremendous amount of historical data available for you to study. Various currency shifts along with their corresponding country’s influencing factors are all there for the reviewing.
This type of data can allow you to compare old information to current information and spot a similarity that will lead to a shift in the exchange rate. Forex technical analysis takes advantage of these trends or patterns in order to maximize the potential profit.
This type of investigation also arms the investor with solid facts, rather than gut feelings or instincts. In the stock market world, transactions are often completed based on what an investor feels about a particular company or fund, sometimes ignoring the black and white data staring them in the face.
By looking at several similar historical periods of trading and seeing how the different currencies have reacted to similar conditions, the analyst can spot a trend. The investor can feel confident in their decision based on the Forex technical analysis.
Timing is another critical feature of successful investing. Experienced analysts know that properly identifying a trend takes patience and hard work. But once they have identified a trend, based on hard evidence, that the trend becomes predictable.
Not only can the movements of the currency be determined but the strength of the trend can also be predicted, allowing you to determine your potential profit. All of these factors combined can show you the best time to buy into the market and also when you should sell, allowing you to use the information from your Forex technical analysis to its fullest potential.
Please remember that this is a purely mathematical way of examining the markets, not an empirical method. While the market does indeed react to things such as supply and demand, political factors and the public sentiment, those items do not come into consideration for this particular style of analysis.
The tools in use such as gaps, trends, and waves, just to mention a few, are developed only by looking at the actual changes in price, and not the underlying reason for the change itself. For those of you that enjoy examining numbers and applying logic to the changes in the formulas, the Forex technical analysis could be a perfect fit for you.
With more than 5 years experiences as a full time trader, Joshua Tree shares his knowledge about forex using videos at INO TV, an exciting new learning platform to share with others about proven forex trading concepts. To gain his 4 FREE Videos about forex trading, please click here.
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