How to Use Technical Analysis for Forex Trading
Currently, traders already know a lot about the tools needed for trading, one of which is using technical analysis. There are built-in indicators from the platform, such as Oscillator, Moving Average, and also custom indicators that can be installed yourself. That’s why, we will explain how to use technical analysis for forex trading so that beginner traders are no longer confused.
Often, beginner traders are confused about the steps to use technical analysis when trading forex. Such as installing indicators, setting a timeframe, then trading, or determining a timeframe, installing indicators, then trading. Then what if the indicator doesn’t match market conditions?
Here’s how to use technical analysis for forex trading properly and correctly:
1. Open the Chart and Identify the Current Trend
The first step you need to do is open the chart and then look at the current trend. You can choose which trend you can follow and take advantage of. You can choose which trend to follow and take advantage of. Then, you can recognize the ongoing trend, either from the long-term trend, or back to the medium-term and short-term trends.
Although you can choose which trend you will take advantage of, it is highly recommended to look for the long-term trend (major trend) and follow it. If you have recognized the trend, then the best strategy for you is to take a position in line with the ongoing trend. If the trend is currently rising, then look for ‘buy’ opportunities. Conversely, if the trend is falling, look for ‘sell’ opportunities.
2. Set Support and Resistance
After you recognize the trend, the next step is to determine where the support and resistance levels are. You can look for buy opportunities in the support area or sell in the resistance area. Of course, don’t forget the first method above, namely taking a position in line with the trend. That way, if you see the trend is uptrend, then look for a buy position in the support area.
Support and resistance levels can also be used as a warning if the price does not move as expected. So, if the support is broken even though you have previously opened a buy position, then the breakout of this support should be a warning to cut losses.
3. Take advantage of Moving Average
You can also rely on the Moving Average (MA) indicator to be able to identify the ongoing trend. If it is difficult to draw a trendline, then you can look at the MA movement to help identify the trend. Simply put, if you see the MA moving down and the price moving below the MA, then the current trend is a downtrend.
Conversely, if the MA graph moves up and the price moves above the MA, then the current trend is an uptrend. Then, MA can also be useful as support and resistance. If the MA is above the price movement, it becomes resistance. However, if the MA is below the price movement, its function becomes support.
4. Filter with Oscillator Indicator
Oscillator indicators can actually provide a description of market conditions that are in an overbought or oversold state. Oversold conditions. Overbought conditions mean a state when the price is considered high enough at that time. This condition is sometimes followed by a decrease in price. While oversold conditions are prices that are considered low enough and are often followed by rising prices.
But you also need to note that overbought or oversold conditions are not always followed by a reversal in the direction of price movement. Often the indicator will continue to be in the overbought or oversold area for a certain time and the price continues to move in the previous direction.
Therefore, you need to adjust the signals given by the indicator with the ongoing trend. If the condition is uptrend, look for only buy signals, and vice versa if in a downtrend, then look for only sell signals. This method is quite safe. Meanwhile, the indicators that you can use include stochastic and CCI. Use only one or two technical indicators, and a maximum of three.
5. Determine Stop Loss and Profit Target
Finally, you can determine the stop loss level and profit target of the transaction being made. In this case, do not forget the risk-reward-ratio rule, where the stop loss should not be greater than the profit target. This rule must not be violated at all. You must also determine how much transaction volume you make. Adjust it to the trading plan, so that if you experience a loss, the amount you receive does not exceed the tolerance limit.
After knowing how to use the technical analysis that we have described above, you can read the tips below when doing technical analysis:
Don’t Use Indicators Excessively
Some novice traders assume that the more indicators they use, the more accurate their market predictions will be. Stop this thinking because it is completely wrong. In fact, the more indicators you use, the more confused you will be in making decisions. Therefore, you simply combine indicators, for example indicators for trends such as MA with oscillator indicators such as RSI or Stochastics. Don’t use too many indicators, just two and a maximum of three so that market movements don’t confuse you.
Use Indicators You Understand
Study carefully and thoroughly so that you understand how to use the indicator, then practice it. If you are sure and can collect profits consistently with the indicator. Also, don’t try something that you have never proven its profitability.
Simple but Better Indicator
Whether or not the performance of an indicator is good, does not depend on how complicated the indicator is, but on the trader’s ability to use it. The simpler the indicator, the easier it is for you to use it. This can be interpreted as, the easier it is for you to know the trick, the easier it is to collect profits.
Practice a Lot
Learning to use technical analysis does take a long time to properly understand its uses and advantages. To be able to do a good analysis, you must practice it directly. Even though you are practicing with a demo account, still treat this account like a real account so that you will get used to it when making real transactions.
Conclusion
Technical analysis is an analysis that is carried out based on the appearance of the graph on the chart by utilizing tools and indicators from metatrader. For beginner traders, you can try to learn to analyze price movements with the help of indicators. Not only is it easy, indicators are able to provide direct signals whether prices are rising or falling.
After reading the five easy ways to use technical analysis above along with the tips, hopefully you will no longer think that technical analysis is difficult. In fact, it is the traders themselves who make this analysis more complicated, because they cannot follow the five easy ways as explained in this article.
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