Technical Analysis: In my last articles, I shared that for any Forex trading method to be considered, it must be first, a complete method, (Forex Trading Methods – Finding the right one – part 2 ) and second, it must teach specific risk management rules. Today’s article on how to find the right trading method for Forex trading revolves around Technical Analysis. I believe the best Forex trading methods are based on technical analysis, without being 100% mechanical or automated.
As you already are aware, there are two primary forces acting in the Forex markets: fundamental data, which include such indicators as balance of trade data, money supply, interest rates, economic and financial reports, etc.; and technical data, which include such indicators as moving averages, average directional movement, stochastics, etc.
So, why should a forex trading method be focused on technical indicators?
First, attempting to trade on fundamental data requires you to be available on a real-time bases at whatever hour of the day or night that the news impacts the markets, and, you must be able to act on that news before (predictive) or at the instant thousands of other forex traders do (reactive), otherwise, you will have missed your opportunity.
Trading on fundamentals, as well, is less about the actual data itself and more about the market’s reaction to that data.
Technical analysis, however, allows the trader more time to make a smart decision. Utilizing technical indicators means the fundamentals are already reflected in the price of the market at any given instant.
While this means you are working more often with slightly lagging indicators, the advantages to using a forex trading method based on technical analysis mean that you spend less time identifying potential trades and when you have identified a trend and look to enter a trade, you have much more data to support the trend’s existence than if you are simply trading on the ‘news’.
Furthermore, by using technical analysis and applying it through a trading method, you can trade the markets on your own terms, when you want to trade and how you want to trade them, without needing to grasp the minute details of what fundamental reports ‘really’ mean.
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