Forex trading is a lucrative venture for those who take their time to gain the required skills. However, there are many who have lost thousands in investment cash dabbling in forex as a get-rich-quick venture. Which is not what forex trading is.
One of the key things that forex traders need to learn is how to assess and predict the market. This enables you to trade rightly, and, at the end, earn a handsome profit.
One of the key skills that traders need to learn to correctly monitor and predict the market is technical analysis.
What Is Technical Analysis?
Technical analysis is a skill that forex traders use to check historical price movements to correctly predict how the market will move.
When you can predict the market price movement correctly, you can always make profitable trading decisions. When you can do this repeatedly, you can become an expert forex trader.
Technical traders are forex traders who rely on technical analysis as their main trading strategy.
Tools Of Technical Analysis
Technical analysis is conducted through various tools. These tools allow you to map out a trend in price movement. Secondly, they also help you to identify support and resistance levels. These are points at which the price movement changes and starts to rise or fall.
The following are tools a technical trader must know how to use and have at their disposal.
Fibonacci Lines
This is a technical analysis tool that identifies support and resistance levels. This means that technical traders use this tool to identify the best point at which to enter a trade.
Fibonacci lines when used properly will indicate a point at which the price of an asset is likely to change. Traders can then enter the market at this point and expect to make a profit as the price moves in their predicted direction.
Relative Strength Index (RSI)
The Relative Strength Index is a technical tool used to show when the market is either overbought or oversold. It also indicates when a particular currency pair is either overvalued or undervalued.
The market is overbought or oversold when the price of a currency pair has moved in a particular direction too fast and the only expected direction is a reversal.
As a trader, you are required to use this tool to help you predict when the point of reversal will be reached. You can then trade the currency pair at that point and expect to profit from your trade.
Moving Average Convergence Divergence (MACD)
This is a technical tool used by traders to help them visualize the trend. It is a tool that has been trusted by traders for a long time now.
When the average converges or diverges above zero, this means that the price is going up. If it is below zero, the price is going down.
These indicators help traders to enter the market when they are likely to make a profit. They also help traders to monitor the market and to identify points at which to exit from a particular trade.
Ichimoku Cloud
The Ichimoku Cloud technical indicator, is a technical analysis tool that offers traders more decision making information than other technical analysis tools. Traders can at a single glance identify the trend, support and resistance and momentum. Ichimoku actually means single glance.
This indicator consists of a cloud and conversion and base lines. The cloud is an equilibrium area that helps you to make your trading decisions. However, it also comes with other technical indicators. This makes it hard to use for many traders as it displays many lines that may be difficult to decipher on a chart.
However, due to the more information it offers, if you can understand it, you have a better chance of making profits in your trading efforts.
Conclusion
As a technical analyst trader, you need to understand these and more technical analysis tools. These tools help you to make informed decisions that will lead to profits in your trading exercise.
To succeed as a forex trader, you need among other things to successfully predict the market or price movement of a particular currency pair. The knowledge and use of technical analysis tools makes you a much better trader.
