Thousands of Forex traders use technical analysis as their prime tool in foreign exchange trading because of its effectiveness. This is the skill, science and strategy of predicting the price movements of foreign currencies based on mathematical computations and statistics and utilizing past data, movements and performance of these currencies. Modern technology is used in analyzing data both in the past and in the future.
In this article are the reasons why you should use technical analysis when Forex trading.
There is accuracy in technical analysis and is more precise than fundamental analysis because it is backed up by facts. The analysts encode past price data in a computer. This then provides information on the patterns of Forex trading which are assessed while concurrent price forecasts and movements are made.
Technical analysis is used by many traders because it is simple to follow. It provides statistics and facts and not mere information that can be construed in any way. Data is therefore consistent thus traders benefit from such consistency and make them achieve a fair playing field.
Another reason why you should use technical analysis when Forex trading is it is easier to perfect than fundamental analysis. The latter needs years of practice for it to be fully comprehended.
Young professionals have invaded Forex trading and this is a generation that brings with them modern technology. With such technology, technical analysis has become easier to perform. Charts can be easily done on the computer and can immediately show trends and patterns in less than five minutes.
In order to be successful with your trading, there are many technical approaches which can be made use of. Most involves making use of trading charts which give patterns that show trends of the movement of the price of foreign currencies. This strategy needs mastery and experience for it to be perfected in the long run.
Another way in which technical analysis can be used involves knowing the direction of chart movements through the assessment of the price action. This can be achieved through the use of specific indicators such as support and resistance, moving averages and others. News about the economy also helps the market forces to increase or lower prices.
Technical analysis also uses moving averages and Bollinger Bands so as to monitor the trend of the currency price. Once the market becomes volatile, the bands extend and when the market calms, the bands narrow. When the Bollinger Bands tighten sharply, this indicates that instability will radically increase thus a brand new price trend may start.
Technical analysis also uses RSI or Relative Strength Index system which differs in value from 0 to 100. This system is employed by technical analysts to show trend reversals. If a value goes beyond 20, a new uptrend shall commence while if a value is goes beyond 80, a downtrend may start.
Another strategy used by technical analysts is the SMI or Stochastic Momentum Index where candlestick charts are utilized. This strategy says closing prices are grouped together around increased prices in an uptrend. Closing prices are grouped together around low prices in a downtrend. Momentum is the basis of SMI indicators where quick price movements come with high volume.
To make a profit from these markets you need access to hard facts and accurate analysis in order to make profits instead of losses. That is why you should use technical analysis when Forex trading because this involves scientific calculations and measurements needed to predict gains.
You can find out further information and some suggested trading strategies for Forex and other markets by visiting this top trading website.
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