As a successful forex trader, you have to know the pain of losing trade by heart, but you do not have to fear it. Otherwise, if you are numb to it, your trading days are over before they even started.
Though losing trades is inevitable when trading forex, you can minimize it by becoming life- long learner. You have to stay focused on learning more every day. It’s crucial to understand that knowing the markets and their intricacies is a continuing lifelong process.
Things That Affect the markets
A better understanding of economic reports and observing things enable the traders to hone their instincts and learn the undertones.
Know that news events, world politics, weather, and economic trends impact the financial markets significantly. As a trader, the better you understand the current and past needs, the better you will be prepared to face the future head-on.
One of the best things that can help you analyze both the past and the current market is using technical analysis.
What’s Technical Analysis
Technical analysis analyzes and forecasts price movements in financial markets by utilizing market statistics and historical price charts.
It depends on the notion that if a trader can recognize previous market patterns, they can make a reasonably accurate prediction of future price course.
Traders and technical analysts use a variety of tools to discover patterns and trends on charts. These tools are
- Bollinger Bands
- Relative strength index (RSI)
- Aroon Indicator.
- Moving averages – support and resistance levels
- On-Balance-Volume.
- Accumulation/Distribution Line.
- Average Directional Index.
- SAR Parabolic indicator
All these tools serve a similar purpose- they simplify identifying trends and understanding chart movements for all technical traders.
Advantages/ Benefits of Using Technical Analysis Tools
The ability to identify price trend signals in a market is a critical component of every trading strategy. All traders must devise a method for determining the best exit and entry points in a market. Using technical analysis tools is a popular method.
Indeed, many people believe that technical analysis tools have developed self-fulfilling trading rules: Because as an increasing number of traders utilize similar indicators to locate resistance and support levels, there’ll be more sellers and buyers gathered around similar points, and inevitably, the patterns will be repeated.
Disadvantages of Technical Analysis
On rare occasions, two different indicators will display contradictory information; for example, one indicator may show a Buy signal while the other displays a Sell signal. This could lead to uncertainty in trading decisions.
For it to work as an effective strategy, it must have the capability to foretell future trends. And it does not do with illiquid markets and securities, plus volatile and explosive movements.
What Indicators Offer
A technical indicator gives a different perspective from which to examine the price action. Some like moving averages are obtained from straightforward formulas and are simple to learn.
Some, such as moving averages, are complex, and you need to study more to understand how they work entirely.
No matter the complexity of every formula, these technical indicators offer a unique approach to the strength and the trend of the price action.
Why Use These Indicators Anyway?
Indicators serve three purposes:
- Alert
- Confirm other technical analysis tools
- Predict
An indicator can serve as a reminder to pay closer attention to price action. If momentum is fading, it’s time to keep an eye out for a break in support. On the other hand, if a significant positive divergence develops, it may serve as a warning sign to keep an eye out for a resistance breakout.
You can use the indicators to verify other technical analysis tools. If you notice a breakout in the price chart, a parallel moving average crossover can certify a breakout.
You can use the indicators to forecast future prices accurately.
The Difference Between Oscillators and Indicators
Generally, Oscillators such as MACD show the distance between moving averages to determine the momentum, strength, and direction of price changes. In contrast, the indicator helps to predict the perfect exit or entry points for a trade.
Closing Thoughts
To be a successful trader, treat your online trading as a part-time or full-time engagement, not as a job or hobby.
If you approach it as a hobby, you will lack an authentic commitment to growing and learning. If you take it as a job, you’ll be frustrated as you will not have any monthly paycheck.
Trading is just like any other business. Sometimes you’ll incur huge losses and expenses. At times you’ll face insurmountable stress, risks, and confusion.
Nonetheless, the benefits can be massive. Implement all you have learned, strategize, and boost the potential of your business.
