Advanced Technical Analysis Techniques for Forex Trading

Technical analysis is an analysis that looks at what happens with currency purely by looking at past prices. Technical forex traders believe that information from past currency price movements will repeat itself. Therefore, the chart graph contains all the information you need to analyze. For this reason, Technical Analysts are also known as Chartists.

Technical traders tend to trade forex for shorter periods than the average fundamental trader. They tend to prefer to enter and exit the forex market at significant price levels such as Fibonacci levels and pivot prices. Technical traders focus on entering the market at the right price, considering that they will not hold the trade for too long.

Given that the forex market is difficult to predict, a trader must have tools that can help forecast price movements. These tools are nothing but analogies of two types of analysis, fundamental and technical analysis.

If fundamental analysis is related to economic, social, and political conditions, then technical analysis is a way of analyzing using statistical tools and mathematical formulas. So, in this analysis technique, you must be able to read various graphs, balance sheets, as well as display statistical data and other indicators.

This technical analysis is important so that you can read market conditions based on previous price history. This technique will also help you recognize the character of price movements that can be used to predict future price conditions.

So, for those of you who want to learn technical analysis techniques, first understand the basic principles of this type of analysis.

Market Price Discounts Everything

While in fundamental analysis, you may be bothered by various news or rumors before making a decision, in technical analysis, you only need to pay attention to the data on the chart. This is because the price movements displayed have already depicted various information and factors that affect the market, including whether the information is just a rumor or sentiment.

Price Moves on Trend

From the statement "Price moves on trend," it can be understood that currency price movements do not happen randomly but tend to form certain patterns; it could be up, down, or sideways. This pattern or direction will continue until there are signs that it will stop or change. The more you understand these trends or patterns, the more accurate your decisions will be.

History Repeats Itself

According to some technicians - the term for traders who practice technical analysis - history always repeats itself. This means that price movements tend to form certain patterns that are not much different from those that occurred in the past. There is a tendency for the behavior of today's traders to be similar to those of market participants in the past.

Therefore, the repetition of these patterns can be used to predict where the next price movement will go when the same 'signs' appear. Because, according to history, the movement patterns that have occurred in the past will definitely be repeated.

Steps for Technical Analysis

After understanding the basic principles of technical analysis, here are some simple steps that can be taken to use this analysis:

Recognize the Trend in Progress

The first step in analyzing a chart is to identify the trend (pattern) that is currently in progress. Then, recognize the various price movements in each timeframe; from long-term, medium-term, and short-term. Here, you can choose which pattern to follow and utilize.

After choosing and recognizing the pattern, it is highly recommended to take trading steps that are in line with the trend. If the price is currently rising (uptrend), then it is better to make the decision to look for 'buy' opportunities. Conversely, if the price is falling, it is better to take 'sell' opportunities.

Determine Support and Resistance

After taking a position in line with the trend, you need to determine the position of the support and resistance levels. If the price movement is in an uptrend, determine the 'buy' position at support and 'sell' at resistance, or vice versa.

These levels essentially function as very useful warnings for the next step. For example, when you open a 'buy' position at support and it successfully breaks through, this is a warning for you to immediately cut-loss.

Utilize Moving Average

Another way to identify the current trend is to use the moving average (MA) indicator. The movement of MA is believed to help identify the trend, especially if you have difficulty reading the trendline.

Here, you only need to understand that the relationship between MA movement, price, and trend is directly proportional. If the MA moves down and the price is below the MA, then it means the market is experiencing a downtrend. Likewise, if the MA moves up, the price is above the MA, it means the trend is good (uptrend).

Not only that, but MA can also act as support and resistance. It functions as resistance when the MA is above the price movement, and vice versa, it will function as support when the MA is below.

Use Oscillator Indicators

In addition to MA, Oscillator is also an indicator that can be used. This indicator is used to provide an overview of market conditions, whether it is in an overbought (overbought) or oversold (oversold) state. Overbought is a condition when the price is considered high and there is potential for a price drop. Conversely, the market is considered oversold when the price is in the low category and often there will be a price increase.

When the market is indicated as overbought, the best step is to wait for a 'sell' confirmation. Conversely, if there is an indication that the market is oversold, it is a good idea to wait for a 'buy' signal confirmation.

However, to be safer, still adjust the Oscillator signal with the trend that is currently taking place. When in an uptrend, look for 'buy' signals, and when in a downtrend look for 'sell' signals.

Determine the Stop Loss

Finally, do not forget to determine the stop loss level for the forex transaction you are doing. Pay attention to the risk-reward-ratio rules so that the risk of losses is not greater than profits. Also adjust the volume of transactions with the trading plan that you have made.

Well, those are some technical analysis techniques that you can apply. Hope it's useful.