Newcomers to forex, dazzled by how fast trading takes place, often think of it as little more than gambling, but once you know how to use technical analysis properly, the whole situation changes. It’s the ability to apply this knowledge during the trading process that distinguishes the serious players from the dabblers. The first thing to keep in mind when you start is that despite all the elaborate terminology, the concepts involved are really very simple. These are the key things you need to know.
Focus on the short term
If you’ve been engaged in other kinds of trading, then you’ll be used to tracking assets over the course of months or years. With forex trading, the emphasis is very different. If you try to build in long-term data, you’ll get lost. Focus on the last few days or hours. As you consider other factors, you’ll soon get the hang of how long a period is relevant in each instance. As you prepare to open positions, however, you should bear in mind that not every broker allows scalping forex, and make sure that you know the rules where you’re operating.
Check the charts
You should begin your analysis by checking the charts (provided for you by most brokers) to identify trends. Don’t get distracted by small spikes or dips – it’s the overall pattern that matters. Familiarize yourself with the high and low prices and significant price movements. Within the time period, you’re interested in, identify the lowest price – the support – and the highest before the last significant dip – the resistance point. This will help you to work out when a rising trend is likely to fall, and vice versa.
Monitor trade volumes
Even if you have no background in statistics, it should be fairly clear to you that when only a few people are trading, you don’t have enough data to identify a trend. If a value is truly rising and is likely to continue to do so, more people will start buying, so these increases in trading volume are a good indication that it’s time to make your move. If you’re shorting, look for a similar increase in numbers in the other direction.
Use moving averages
To improve your chances of identifying the point at which a trend will reverse, you can use moving averages – a series of averages taken across equal periods of time. These help you to filter out outliers and get a clearer picture of what’s going on. It isn’t always necessary to do this manually as some trading software is set up to make it easy, so all you need to do is feed in your chosen parameters.
By approaching trading in this way and factoring in other indicators (which, again, your software can help with), you can take the guesswork out of it and enjoy a significantly higher success rate. Although there are never any guarantees, you should improve with practise, learning to identify useful information more quickly, and take the first steps towards a successful forex trading career.