How to predict the Future in Forex Trading
By studying the Past (Technical Analysis):
1) The best traders don’t discount one or the other but understand that having an understanding how the fundamentals influence market sentiment gives him/her an edge over those traders who don’t.
2) Technical Analysis is the easiest and most accurate way of trading the Forex market.
3) “The numbers don’t lie” – all available information and its impact on the market, are already reflected in a currency’s price.
4) Prices move in trends – the foreign exchange market is mostly composed of trends and therefore a place where technical analysis can be very effective.
5) History repeats itself – over time, certain chart patterns become consistent, predictable and very reliable. The question is SEEING them.
Prices move in trends
The traders who don’t believe this obviously have no need to implement a trading methodology on technical analysis. But, research has shown that those who trade “with the trend”, greatly improve their changes of making a profitable trade.
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.
How does technical analysis help to determine what the trend is and how to trade with then trend versus against it?
Even though, you learn you how to use and read various technical indicators to identify a long- term trend, spot predictable chart patterns and use certain rules to enter and exit a high-probability trade, and even though a ll this involves sound logic, parameters, methods, formulas, data, and research, these technical indicators, by themselves, are not the Holy Grail of FOREX trading.
It takes discipline and emotional control to stick with trading following through the inevitable market ups and downs. Keep in mind, good technical traders expect ups and downs.
Which technical indicators are the best?
NONE – technical indicators should simply be components of your overall customized, personalized trading system, and not a stand alone system.
The objectives as a Technical Trader are:
- To figure out the price action of the currency pair. Price is the main concern. If the EUR/USD is at 1.2224 and goes to 1.2020, 1.1980, 1.1940- the market is in a down trend. Despite what every technical indicator might predict, if the trend is down, stay with the trend. Indicators showing where price will go next or what it should be doing are useless. A trader should only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing.
- Always remember that technical indicators are only giving you confirmations based on what the market is telling you. So listen to the market and let it tell you which method, strategy or techniques you should use.