How to use technical analysis in forex trading

Technical analysis is nothing but using the past record of currency to predict its future course with the help of some technical indicators. Of course the currencies so not always follow the same path as they did in past and thus technical analysis is not a 100% correct prediction tool but a good understanding of technical analysis always gives the trader an edge. Technical analysis is a very common tool in stock market and finds very much relevance in forex market as well.

Primarily technical analysis is performed by using some of the various technical indicators available. A technical indicator is displayed at the bottom of the screen and depicts the price action with graphical representation. Some very popular technical indicators in forex market are Fibonacci retracement, Bollinger bands, moving averages, moving average convergence divergence (MACD) and stochastic. Technical indicators like support and resistance, trend lines, etc can be helpful to observe if the currency movement. The trend lines help us to observe if currency is following any pattern, what is the nature of movement, upwards, downwards, or sideways or no movement at all. Support and resistance lines come handy when the currency is oscillating, using them the direction of the currency movement can be predicted. All this observation and prediction is done after reviewing recent history by looking in the chart.

Technical analysis has many advantages like being quick and easy to use. Most of the times the broker provides technical indicators for free or for very minimal charges so the cost is also not a concern. With so much money at stake every trader should find logic in his investment by looking at the trends in these technical indicators. Technical analysis also plays a major role in making trade strategy. It is easy to identify the currency pairs that are more volatile and the ones that are more stable. It also helps the trader to set targets by looking at the past performance of the currency.

Identifying trends and patterns becomes easy by using technical analysis and one peculiar thing about patterns in forex market is they keep repeating most of the times. So traders can strategize accordingly. For instance if the technical indicators show that a currency is about to gain value or lose value he can buy the currency pair and make profits.

Technical analysis is just a tool; the trader discretion is what plays the main role. Patience and holding your nerves are the main characteristics that a successful trader has. Technical indicators remain same for all the traders around the world. What differentiates their wining or losing money is there interpretation of the same. The trader should also be aware of the happenings around the world as they put major affect on exchange rates. A well read trader in conjunction with technical analysis is set to make profits and if not huge profits, he will at least not make trading blunders.