Be more successful through this technical analysis

In the bustling world of finance, the Forex market is a sea of ​​uncertainty, where currencies surf in endless exchanges. To minimize the risks caused by unforeseen fluctuations, we should apply the Forex Technical analysis method. Let’s explore deeper into this complex world with Forex Trading. Traders need to understand not only the Concept of Technical Analysis in numbers and Forex charts are not only data but also indicators of success. Find out now through the following article!

What is technical analysis and why is it necessary in trading?

Technical analysis is an indispensable tool for traders in making trading decisions. By studying charts and technical indicators, traders can identify trends, find trading opportunities, and manage risk effectively.

The concept of technical analysis in Forex

Technical Analysis is the process of evaluating and predicting price movements of currency pairs based on historical data on prices and trading volume. The goal of Forex Technical Analysis is to identify market trends and find trading opportunities based on technical indicators and patterns.

This process in Forex typically includes identifying market trends, and entry and exit points, as well as identifying important support and resistance levels. This information is extracted from price charts and used to make trading decisions. This is an important part of the trading strategy of many Forex traders. Helps them better understand market behavior and increase their chances of trading success.

Advantages of applying Forex technical analysis in trading

Applying Technical Analysis in Forex trading has immediate and easily recognizable advantages:

• Helps traders recognize and determine market trends. By analyzing charts and technical indicators, they can identify price increases or decreases and determine the exact trend of the market.
• Providing individual traders with the tools to identify potential trading opportunities. By looking at chart patterns and technical signals such as support, resistance, and other price patterns, they can locate effective entry and exit points into the market.
• Provides information on support and resistance levels, as well as other technical indicators, helping traders identify stop losses and profit targets, thereby minimizing risk and optimizing profits.
• Often used for short-term and intraday trading, allowing traders to take advantage of short-term trading opportunities that appear during the day.
• Based on reading charts and using simple technical tools like moving averages, MACD, RSI, etc., it is most accessible and understandable for new traders.

Tools	Function
On balance volume (OBV)	As OBV increases prices move higher. When OBV falls the price drops lower.
Accumulation/distribution curve (A/D)	If A/D increases, the buying force is strong, confirming the uptrend. If A/D decreases, it confirms a downtrend.
ADX index	ADX above 20 and DI+ above DI-. It is an uptrend. ADX above 20 and DI- above DI+. It’s a downtrend. ADX below 20 shows that DI- and DI+ intersect too quickly.
Aroon Oscillation	Aroon Up remains relatively at 100 while Aroon Down is still approximately 0, showing that the trend is increasing. If Aroon Down is near level 100 and surpasses Aroon Up, it proves that a downtrend is happening.
MACD line	When MACD is above 0, the price is rising. If MACD is below 0, it is in a bearish phase. When MACD is below the signal line, the price is falling. When MACD is above the signal line, the price is rising.
RSI index	When the RSI is above 70, the asset may decline in price because it is considered overbought. When the RSI is below 30, the asset may increase in price because it is oversold.
Stochastic	Stochastics are similar to RSI in that they are often used to identify overbought or oversold levels. Values ​​above 80 are considered overbought. Values ​​below 20 are considered oversold.

Instructions for trading with the trend with the Parabolic SAR indicator

Identify main trends:

• Uptrend: Parabolic SAR points below the price.
• Downtrend: Parabolic SAR points are above the price.

Determine entry point:

• Buy order: Enter the order right after the SAR point appears below the price candle.
• Sell ​​order: Enter the order immediately after the SAR point appears on the price candle.

Set stop loss and take profit:

• Set a stop loss at the nearest Parabolic SAR point for a buy or sell order.
• You can use resistance/support levels or other tools to determine a reasonable take-profit level.

The chart below shows examples of buy and sell orders placed according to the Parabolic SAR.

• Red circle – Sell stop order is activated
• Green circle – Buy stop order is activated

Instructions for performing technical analysis through some price models

Price patterns are specific shapes formed on price charts that traders use to predict the market’s next direction. Here is a detailed guide to some popular pricing models:

Instructions for technical analysis through the 2-peak model

Step 1: Confirm the double top pattern:

• Start by identifying the double top pattern on the price chart and confirming it.

Step 2 : Determine the entry point for a sell order:

• An effective short entry point is when the price breaks through the support level created by the middle bottom of the double-top pattern.
• When the price breaks above this support level, it could be a sign of a continuation of selling pressure and a new downtrend.

Step 3: Determine profit target (Take Profit) and stop loss level (Stop Loss)

Set a target for your desired profit:

• Measure the height from the peak down to the support level created by the middle bottom of the double top.
• You can set a profit target at the expected price level that the market can reach after falling from the support level.

Determine how much loss you can bear:

• The stop loss is usually placed at a safe level, usually above the top of the double top.
• The purpose of a stop loss is to protect your capital from unwanted fluctuations. Or in the case of a continuation of the uptrend because the double-top pattern did not work as expected.
• Make sure your stop loss is within your control.

technical analysis in forex through the positive head and shoulders pattern

Step 1: Determine the model’s entry point

• The most common entry point is when a breakout occurs – the neckline is broken and the trade is entered.

• This method refers to waiting for a retracement after the breakout has taken place. This is more conservative in that the trade could be missed if the price continues to move in the direction of the breakout.

Step 2:  Risk management:

Determine your stop loss at a level you can control:

• The stop loss is usually placed at the level of the break through the neckline and a certain safe distance.

Determine the profit you want to have:

• Determine a reasonable profit target based on the height of the head or other potential support levels.

Step 3: Use resistance and support levels:

Resistance level:

• When the price breaks through the neckline from the bottom up, the neckline becomes a new resistance level.

Support level:

• After the H&S pattern completes and the price breaks through the neckline from above, the neckline becomes a new support level.

Technical analysis forex through the ascending triangle pattern

Step 1: Determine the model formation

To find an ascending triangle pattern, look for areas where the price has a strong uptrend and is currently trading sideways.

Step 2: Wait for Breakout and close the order

• Ascending chart patterns can take weeks to months to fully develop.
• Every test of a new resistance area has the potential for a breakout, but traders should be wary of false breakouts.
• A sustained breakout is often accompanied by above-average trading volume.
• The closer the ascending trendline is to the horizontal resistance line, the more likely a breakout is to occur.

Step 4: Set profit target and resistance level

What disadvantages does technical analysis Forex have that are worth paying attention to?

Technical analysis is a popular method in Forex trading, however, it also has certain disadvantages.

Depends on past data

• Technical Analysis is based on the assumption that past trends and patterns will repeat. However, this is not always true as the market can change due to many different factors.
• Unexpected economic and political events or sudden news can change market trends that Technical Analysis cannot predict.

False Signals

• The Forex market can have many small fluctuations, leading to many noisy or false signals from technical indicators, making it difficult to determine the exact trend.
• Using too many indicators can lead to conflicting signals, causing confusion and reducing the effectiveness of the trading strategy.

Requires skills and experience

• Understanding and proficiently using Technical Analysis requires considerable study and practice time.
• New traders may have difficulty applying technical indicators and patterns correctly.

See more: Indicator- Increase ability analyze and forecast exact

Where to learn basic technical analysis?