FOREX Technical Analysis Explained

The basic types of technical analysis tools are charts, moving averages, and momentum analysis. Your analysis of the markets is only one of three components to successful trading -- money management and psychology are the others. I have seen traders fail with a fully mechanical system that was running with a very high frequency of winners because their other trading components were deficient.

The number of technical analysis charts, indicators, methods, and systems can fill a small library. The subject is fascinating but be objective and remember that your ultimate goal is to make money.
Keep your technical analysis arsenal to a minimum and balanced. Always know what a technical tool, especially an indicator, is actually measuring. Also ask yourself if it is primarily a trading market tool for when prices move sideways or a trending market tool for when prices move predominantly up or down. Remember that the most popular methods, such as bar chart formations and support and resistance, are used by many traders. The market gradually discounts chart patterns and indicator signals when used by many traders over a long time.

Most traders use the same tools or flavors thereof. Also, most traders do not succeed -- draw your own conclusions.

Your analysis of the markets is only one component of your trading system. In fact, two other components are more important, in the opinion of the author: money management and psychology. Most traders who fail (and most traders do fail) tend to spend all their energies on developing a trading system at the expense of money management and trading psychology. Do not be like them!
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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