Do you want to learn the Technical Analysis Basics?
Do you want to be a PROFITABLE TRADER?
Becoming a profitable trader, you need to develop the skill to profit from the market.
The skill that a trader needs to develop is the analysis on the Forex Market.
There are typically two types of analysis.
One is the Fundamental Analysis.
And the other one is the Technical Analysis, which is what we are going to talk about in today’s topic.
In the trading world, there are traders who trade only using Fundamental Analysis.
But most of the traders are using Technical Analysis to trade in the Forex Market.
If that said, did any trader use both of these analysis in trading?
Yes of course, there are also traders using both of these analysis in trading.
But Technical Analysis is the most used type of analysis in the trading world.
It is a skill to analyze the market price, one of the most important skills for a trader!
Next, I want to share with you some of the Technical Analysis Basics.
How A Trader Perform Technical Analysis?
Technical Analysis is a process of reading and understanding a graph or chart and knowing what is happening based on the past information(the price movement).
In the analyzing process, a trader may use some of the tools like lines and indicators to undergo his or her analysis.
From the analyzed result, the trader will use it to forecast the price direction in the chart.
Then, the trader will calculate the risk he or she can take before placing a new trade.
(If you are a new trader, you need to know other than the Analyses, Risk Management is also very important in Forex Trading.)
So, above are the simplified steps that how a trader using the Technical Analysis in the Forex Trading.
We are going to talk about the types of analysis that a trader might do in the Technical Analysis.
The most common type of Technical Analysis are Japanese Candlesticks Analysis, Price Pattern Analysis, Trend Analysis and many more.
The first and the most important in the Technical Analysis is to select the chart that is suitable for the trader’s Analysis.
The Types of chart that selected for trading is also a part of the Fundamental Analysis.
It is because some of the analysis only can perform in the certain type of chart.
Just like we only can perform Candlesticks Pattern Analysis in the Japanese Candlesticks Chart.
This type of analysis only can perform when the right chart is selected.
With the chart selected, some traders doesn’t need other tools or indicator to perform a detailed analysis.
If you become an experienced trader, you also can analyze the chart with nothing, not even a line drawing on the chart.
So in the Technical Analysis basics,
The first step is to know what is the chart you want to use. If you are a beginner, you need to know how to read the chart at the first place.
After the Chart Selection, you need to start analyze on the chart you selected with multiple types of Technical Analysis.
Next, I want to share the common and simple type of analysis and tools that the traders used.
The first one is…
The analyzed results is to find out the trend of the price heading.
Riding a trend is like riding the wind. Where the price is our kite.
The kite fly when following the correct direction of wind flows.
TREND IS YOUR FRIEND
TREND IS YOUR FRIEND
TREND IS YOUR FRIEND
The above phrase is very very important, so I repeated three times.
You will only want to trade with the trend flows, not against it.
After the trend is analyzed from the chart, the easiest thing that a trader do is to ride the trend.
Then that’s all for a simple introduction and explain for Trend Analysis.
For a more detail Trend Analysis and Trend Trading information, please read the post about the Trend Trading.
It has covered how to perform the Trend Analysis with the most simple tools – lines.
By drawing lines in the chart, we can know where the price trending.
After using the lines in the Trend Analysis we can also know that where are the…
The Support and Resistance Levels are to determine the “range” of the price movement.
The Support and Resistance Levels are like a barrier for the price. If the barrier is very strong, the the price will have a lower chances to break through it.
When we know the “range”, we will be able to know that the price moving behavior.
The Support and Resistance Levels are like the red lights, the price is the cars,
The price movement normally will slow down when it is near to these Levels.
But that doesn’t mean the price will not break the Levels.
It’s just harder for the price to break it.
When you know the levels, you can know that when to trade and when not to. Besides, it is also a tool for you determining your stop loss of the trades.
Thus, Support and Resistance Level is very important to continue the more complicated analysis.
Since the emotional reaction of human to the market condition doesn’t change, so the price movement will form similar patterns in certain condition from time to time.
So what is mean by Pattern?
In the designer’s world, Pattern is means by “A repeated decorative design.”
The most important meaning of Pattern is the word “REPEATED”.
Which means the Patterns are the things that had happened and will happen again and again.
In the Forex Trading, if we find out the Pattern of the price movement, then we forecast the price movement more accurately, righ?
Of course is a YES!
So, this Technical Analysis – Pattern Analysis is beneficial to learn.
In the Price Pattern Analysis, it is easy to learn.
You just have to know how to draw lines and determine the Support and Resistance Levels with the lines.
From the Price Pattern Analysis result, you can understand retrenchment better and knowing where is the breakout point of the retrenchment.
If you are a beginner in Forex Trading, Price Pattern Analysis can help you to improve your win rates and also reduce some of the confusion in the trend movement.
It is not only used by the traders, but also the investors.
It is easy to use and simple but not complicated at all.
Moving Average form by averaging the prices over a certain period of time.
E.g. The summation of 10 prices in the continuous period divided by 10 will produce one point of Moving Average in the chart. After creating multiple moving Average points by using the different period, the points will then connected together and form a Moving Average Line.
Is it very blur for you to understand the calculation of Moving Average?
Most of the traders using Moving Average to determine the timing to place a trade.
E.g. traders use multiple Moving Average lines of different period to determine the crossing of these lines. The crossing point is considered as the time a new trend is formed. Then the trader may enter due to this factor.
Other than aiming for the formation of the new trend, the Moving Average Lines also act as the Moving Stop-Loss.
Some of the traders will use the trading strategy like – sell or buy (long or short) when the price touches the moving average line.
So the above are the simple introduction and the usage of the Moving Average, to learn and know more about Moving Average, please click here.
Combine The Technical Analysis Basics
Form the above Technical Analysis basics, you can combine them and use it together in your trading strategy.
The following steps is one of the example of the method to create your own trading strategy:
- You need to know where the trend flows using Trend Analysis.
- Then using the Support and Resistance Levels to know where are the “range” of price movement.
- Determine the Price Pattern to see the continuation or reversal of the price.
- Using Moving Average to know the crossing, stop-loss location and time to enter the trade.
The steps shown is just one way to analyze the chart.
After you practice it again and again, and also gaining new knowledge about trading, I’m sure you will develop your own Technical Analysis that suit you the best.
Is the basic tools enough or not?
If not, I will introduce you one more tool…
Fibonacci Retracement is come from the Fibonacci Sequence and it was invented by a mathematician called Fibonacci.
The Fibonacci Retracement here is used in the chart and not for solving the mathematical solutions.
The function of Fibonacci Retracement is to find out the support and resistance levels when the price retrench in the trending condition.
Other than that, traders also use it to forecast the movement of the price and find the entry within the trend.
Lastly, It also can help the traders to set the stop-loss of new trades.
Many of the traders will like to use this tool to analyze the market, for a beginner, it may be having some confusion if you directly start to learn and use this tool.
I will encourage you to learn the other tools in this post first before learning the Fibonacci Retracement.
Without analyzing the market, a trader is just a gambler.
It’s because the risk is big when you don’t know what you are doing.
If you depending on your luck in opening trades, you will take big losses, bigger than you think.
Through Technical Analysis, it gives you a higher probability and opportunity of win rate in your trading.
In Technical Analysis, I encourage you to use multiple of the analysis. It is encouraging depend solely on one type of analysis.
Result from analysis is not truly accurate, it is just like the weather forecast, the analysis that have done is only to increase your win rate in your trades.
If you are a beginner, then learn all of the Technical Analysis Basics. It will support you through your trading journey.
Thanks for spending your precious time together.
Let us grow and learn together.