The Technician Approach to FOREX

The Technician's Creed

All market fundamentals are depicted in the actual market data, so the actual market fundamentals need not be studied in detail.

The technician believes prices have memory -- that past prices do influence future prices. If you get in a market, you have to get out. History repeats itself, and therefore markets move in fairly predictable, or at least quantifiable, patterns. These patterns, generated by price movement, are the raw buy and sell signals. The goal in technical analysis is to uncover the signals exhibited in a current market by examining past market signals.

Prices move in trends.
Technicians typically do not believe that price fluctuations are random and unpredictable. Prices can move in one of three directions: up, down, or sideways. Once a trend in any of these directions is established, it will usually continue for some period. Trends occur at all price levels: tick, 5-minute, 1-hour, 1-day, weekly. What is a trend at the 1-minute level is obviously just a small blip on the radar on a weekly chart. The various price levels are interconnected in intricate and fascinating ways.

The Technician's Caveat

Never make a trading decision based solely on a single indicator or chart pattern. The eclectic approach of comparing several indicators and charts at the same time is the best strategy. Try to move from the most general conditions of a market to the most specific. Sift your technical tools finer and finer until they result in a trade.

Tip: As you develop your own trading method, find one charting technique or indicator for the most general forecast of the market and then find others to sift, refine, or filter that primary tool.

As in all other aspects of trading, be disciplined when using technical analysis. Too often, a trader fails to sell or buy into a market even after it has reached a price that his technical studies have identified as an entry or exit point. This is money management and psychology, not technical analysis, and both are very important.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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