Why technical analysis is important?

Why technical analysis is important?

Will be traded foreign exchange market at any time and at any place. As long as you have access to a computer, you have the ability to trade in the Forex market. The important thing to remember is before jumping into trading currencies, it is wise to practice with “paper money”, or “fake money.” Most brokers have demo accounts where you can download their trading station and engage in real time with fake money.Technical Analysis help you in determining the course of action that should be going.

The participants of the Forex market

Data analysis is important to make profits in Forex. Instruments and analysis methods vary greatly from one trader to another. They mainly depend on the trading strategy used by the latter. However, the players all agree that Forex technical analysis is one of the most profitable in the short and long-term methods.

The importance of technical analysis in Forex

Forex is a huge market where currencies are traded daily. Millions of traders buy and sell these currencies trying to make a profit. Those who are interested in the evolution of currency using the method of technical analysis to trade in the forex market.

Presentation of technical analysis

Technical analysis is an empirical approach that allows to accurately determine the direction and evolution of currency . It is believed that this method was introduced in the 19th century by Charles Dow , but the process is much older than this period. In fact, the Japanese were already using a similar method to anticipate changes or decline in rice. This technique is widely used by institutional investors , as it allows us to understand and anticipate the reactions of individuals faced with more or less favorable external circumstances.

Usefulness of technical analysis

With technical analysis, the trader knows about how market participants react to fear, despair , or in case of good news. The redundancy of economic crises and market crashes is proof that investors repeat their mistakes and therefore they reason almost always the same. When a trader has identified the logic of this argument , he commits himself fewer errors and can earn more money.

How to conduct a technical analysis ?

Technical analysis includes many mathematical and logical processes that are interpreted to explain and anticipate changes in exchange rates.

The methods of technical analysis

Among the methods for analyzing the most common include :

the chartist analysis

modern analysis

fundamental analysis.

The chartist analysis is to explain the current trends using charts. The most commonly used for this purpose are the candlestick charts and trend lines . Modern analysis uses mathematical indicators to interpret the evolution of the course. The most common are the ETE ( shoulder – head -shoulder ) , double bottoms and Fibonacci retracements . With indicators of modern analysis, better appreciate the underlying trends , trends oversold and overbought and the risk of volatility.

Fundamental analysis is in turn , a complete analysis method itself . It is used in addition to technical analysis. The results of fundamental analysis are useful because they allow us to understand the macroeconomic trends .

Some technical analysis tools

Experienced traders always use some tools to improve their technical analysis. The MACD indicator is essential eg for the detection of differences in exchange rates. An appreciation of the differences also influence trading strategy. To understand the conditions of purchase and sale in the market, traders use Bollinger Bands. Other indicators like the stochastic and Elliot waves are essential in technical analysis. With experience, these elements are combined to better assess price trends and adapt their strategies accordingly.

Make trading with technical analysis

When technical analysis is done well, it highlights a number of trends that the trader takes into account post sales orders and purchase. For example, if the trend is up, he earns more by placing sell orders. If there is any trend, it may choose to close their positions and come back later. Technical analysis also helps to identify the supports and resistances. Based on these indicators, he knows exactly where to place the sell order with minimal risk of loss.

Limitations of technical analysis

However, technical analysis is not everything. A trader who combines eight straight wins by this method may be a good analyst, but he can lose all that money on a position. Therefore, in addition to analyzing and understanding the evolution of course, we must learn to keep his cool. Otherwise, technical analysis will not help.

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