Why it is Important to Learn Forex Trading Technical Analysis
Understanding the importance of technical analysis in trading helps traders stay motivated while they learn how to deploy it in forex trading. With other trading types, technical analysis may not come into play that much but, with currency trading, it influences the market heavily.
Why you Should Learn Forex Trading Technical Anslysis
One of the reasons why technical analysis should be at the forefront when you learn forex trading is that a big percentage of traders use technical analysis tools. Even traders, who classify themselves as fundamental analysis traders respect and take note of these tools and what they are saying. At the end of the day, the market obeys technical analysis because most people are looking at the same parameters, thus making it a self-fulfilling prophecy.
As an example, everyday, pivot points and resistance/support levels are calculated by millions of traders from all over the world. In using these levels, traders believe that once a particular level is broken convincingly, the next level after that would be the next target and, when the market fails at a particular level, it is going to move backwards to the point it moved from.
So, when a trading day starts and markets move to the first resistance level and breaks it, the next destination would be the second resistance level. If it moves to that level but fails to close above it, the market will likely head back down to the pivot level.
Every trading day this kind of scenario plays out because many people are watching the levels. Another tool that maps out important technical levels to watch for is the Fibonacci tool. The retracement and extension levels are keenly watched by other traders, so learning to use these technical analysis tools helps the trader see what others are seeing.
Ability to avoid trading by instincts
A clear understanding of technical analysis helps a trader avoid trading based on what the “inner mind” is saying. In other areas of life the inner voice is usually correct but, 90% of the time, it is wrong as far as trading the markets is concerned. With a good understanding of technical analysis, it becomes very easy for the trader to trade with clear entry and exits rules. Trading with technical analysis involves the use of indicators such as the ones talked about above, and also ones that are custom-made. All of them help in shaping the trader’s decision-making process.
Now, it is common to hear people who have learnt technical analysis in Forex trading claiming that they are technical traders and, so, do not have any regard for fundamental analysis. This is very wrong. Even after mastering technical trading, it is important to understand the importance of fundamentals to the currency trading market. Failure to do this will leave the trader running around in circles. The most successful forex traders are individuals who have been able to fully find the balance between technical analysis and fundamental analysis; the balance that works for their trading style.