Forex Strategies Using Technical Analysis

Technical Analysis is to trading what Fundamental Analysis is to investing. Anyone who is concerned with making money over the short term by trading needs to develop a thorough understanding of technical analysis.

Many investors are used to checking the fundamentals of stocks and currencies to see where the long-term trend is headed, so that they can use their money to generate capital gain and/or income over the long-term. There is nothing wrong with this particular way of making a steady profit, provided you have a distant time horizon and are satisfied with the expected returns.

On the other hand, if you are interested in actively trading to generate income, the fundamentals are just one small section of the information that you must consider. Certainly, traders do well to identify the overall long-term trend in price, and some traders will only make trades if they are in the direction of the long-term trend.

However, your Forex trading strategy is bound to include consideration of technical factors, known as Technical Analysis, and there are a multitude of indicators that you can choose that help you determine the sentiment of the market and other traders at any particular time. The essence of a Forex trading education is to learn how to view the signals being given by these indicators and apply them to your trading.

Analysis of price fluctuations and movements over a variety of time periods can give you a good indication of where the prices will be headed. Some basic analysis includes finding the support and resistance points that you expect to be maintained and revisited in future fluctuations. Another classic consideration is the volatility of a price, as this will affect how far you should let the trade go against you, if it initially moves in the wrong direction, and also how closely you will follow a winning trade with your trailing stop.

Technical indicators are assembled and calculated from previous price history, and many have been invented and refined to improve success at predicting the future. In fact, some indicators have been developed to the point where they are seen to be a solid accurate precursor of what is to come. While some are simplistic and easily understandable, such as moving averages, others require a thorough Forex trading education to understand their application and uses.

What the moving average cannot tell you directly, for example, is the market's enthusiasm for a bull or a bear move. Such information can be seen much more transparently by looking at developed indicators, such as the stochastics or Moving Average Convergence Divergence (MACD). These move to indicate whether the market is overbought or oversold, and whether they support or deny the actual price movement is also a significant factor.

There is no doubt that there is a lot to learn, and many of the basic indicators are available with any charting packages. You should make sure that any Forex training online includes full information on the advantages of and limitations on the use of the common indicators, and provides examples which will clarify these recommendations.

Mark Soberman of NetPicks LLC has been trading for over 20 yrs and offers free educational resources, live forex and futures signal services, as well as a new product centered around training for swing trading in the Forex market.

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