Lesson 5: Introduction to Forex Technical Analysis
Lesson 5: Introduction to Forex Technical Analysis
Technical analysis refers to a wide range of rules, techniques and principles. Two sub-disciplines can be distinguished in technical analysis: Chartism and "mathematical" analysis, which concerns indicators.
Chartism (or graphical analysis)
Chartism refers to techniques that directly study graphs, for example by plotting lines (supports, resistances, trend lines, etc.) or by trying to identify repeating "graphic configurations".
Chartist analysis is the heart and origins of technical analysis. Experienced traders consider Chartism to be more reliable, effective and useful than indicators.
The main advantage of Chartism is its simplicity : It is indeed very easy to master the rudiments of graphic analysis, and then everything is a matter of experience.
According to the experts, the value of chartist analysis lies in the fact that it focuses on "raw material", ie directly to the evolution of prices on charts, unlike indicators that pass This raw information in "mathematical mills", as if to refine them in order to extract additional information.
Indeed, we must not forget an old stock market adage which states that "all the necessary information is in the prices" ...
Several lessons are related to the graphic analysis in the program you are reading and we invite you to consult them:
In addition, our professional training University of Forex offers to train you in an advanced way to the graphic analysis, which can be very interesting for traders wishing to start the serious things in the best possible conditions.
Trading indicators and signals
The indicators, on the other hand, include techniques for mathematical reprocessing of prices, mostly with a curve that comes under the currency price chart from which you can extract "signals" inviting you to buy or sell At a specific time.
Generally, when a beginner is trained in technical analysis, he feels that he has found the Grail of trading: A set of techniques to apply to know what to do and when!
But everything is not so simple, because you have to be able to interpret signals correctly , you have to be able to eliminate "false signals", not to mention that technical analysis is not an exact science and that the best analysis of World will never be 100% right.
In our view, technical analysis is more focused on "putting probabilities on the table", assessing the direction in which the currency pair is most likely to evolve.
At this stage it is essential to understand that trading involves risks, and that nothing, absolutely nothing is never 100% sure when talking about technical analysis.
Why and how technical analysis works?
Even if the technical analysis does not always work as well as one would like, it is clear that the results are often there ... But why does it work?
The answer is self - fulfillment .
Technical analysis and indicators are indeed known to ALL traders. Many traders therefore use the same techniques at the same time, and therefore see the same signals at the same times.
As a result, many traders pass the same trades at the same time, and thus move the market themselves (via the supply and demand law) in the direction given by the signals.
It is mainly for this reason that technical analysis works, when it works.
It is therefore possible to draw valuable conclusions from this observation, and to help them to practice correctly the technical analysis.
Indeed, if the technical analysis works by self-realization, the tools that are used must be very widespread among traders. We will therefore carefully avoid the last indicators in fashion, with the calculation sometimes obscure if not completely wacky.
It is in the old pots that we make the best jams, and this is confirmed also in technical analysis and in trading.
It is also useless to try to find signals that are not very visible, which will only be spotted by a few traders (who may not even follow them, since they will know that few people will follow them).
Three principles must therefore be adopted before starting to study technical analysis:
Always use the most common techniques (therefore the simplest and the oldest)
Always give priority to clear signals and observations
To be aware that behind the technical analysis one finds the human nature, by essence unpredictable, so nothing is never 100%
Comments
Post a Comment