Foreign Exchange market traders need to know how to use technical analysis correctly and accurately in order to make a profit from their trades. Based upon data created from historical prices, foreign exchange traders need to be able to interpret their technical analysis in order to effectively use this information. Use the following six tips in order to manage your technical analysis more effectively.
1. Make sure that your data is valid for your purposes. You can use foreign exchange charts but make sure that you use those charts wisely. It would not be a good idea to try to day trade based upon the information that you get from those charts. Short term trends are unreliable and it is ineffective to try to make any profits based upon day trading alone.
2. Keep an eye on resistance and support levels. Make sure that you use charts showing both weekly and daily trends to see where resistance and support levels are. Also, check both charts to make sure that those levels coincide. If you test a support and resistance level several times in two different time frames then it is probably a valid level.
3. In order to locate and follow trends, make sure you use a time frame where the trend is clearly visible. Trends can last for years based on economic cycles, so use a weekly chart in order to see what major trends are occurring. It is easy to spot entry and exit points once you have located your trend.
4. In the foreign exchange market, major trends rarely occur from market lows. Instead, they tend to appear from market highs. It might go against your instinct to buy when the market is high but breakout trends can move higher at a very quick rate so wait for those trends to happen and then take advantage of them.
5. Stochastic and Relative Strength Index as indicators of momentum. These can allow you to predict when a currency will increase and whether or not the support and resistance levels are going to hold. If you trade based upon this momentum then you can end up with more profitable trades. You will almost certainly lose your capital if you trade without momentum.
6. Don’t trade just because you think you should. If you aren’t getting clear signals from the foreign exchange market then don’t do anything. Wait for trading opportunities and make good decisions. When you do trade, attempt to minimize your losses by making sure that you are using your stop loss and limit loss correctly.
You can make some reasonable profits as long as you follow these six easy steps.