FOREX FOCUs
Applying Technical Analysis
Trading Forex, Technically
In this, the second part of the series, we look at how to apply pure technical analysis to trade the forex markets.
In my last article, I explained how important it was to keep abreast of the news when trading the forex market. I explained how closely currencies are tied to interest rates, inflation, and the excessive printing of money, which can lead to inflation. I also discussed how the words of a president, prime minister, governor of a reserve bank, or any chairman of the board of governors of the US Federal Reserve can move a currency even as the words leave their mouths. I also stated that there is no insider trading, and that trading volume is in trillions of units.
I explained how important it was to choose a foreign exchange trading platform, not only one that suits your personality and style of trading, but one that is genuine in its pricing of currencies. I also suggested any robotic systems offered should be checked and rechecked in their ability to trade on your behalf. Remember, a robot trades not on gut feel or instinct, but on a technical analysis strategy that is the most successful.
Once again I must stress how important it is to analyze the news and come to a constructive decision before taking a position on which currency you intend to trade by scalping, short term, medium term, or long term.
Applying pure technical analysis
Here, I will discuss pure technical analysis as a way to trade the forex market. Rather than use one of the many forex trading platforms advertised, I will analyze the currencies using the same programs I use to study the stocks I trade and invest in. I will also use end-of-day analysis rather than intraday analysis.
Before I go further, I must discuss the most important thing in trading the forex market, and that is risk. Trading in forex is highly speculative and involves a significant risk of loss. Such trading is not suitable for all investors so you must ensure you fully understand all the risks and take the necessary steps to control them before trading.
Figure 1: placing your order. Brokerages have made their front-end very user friendly. Here you see an example of lot size, where you select the amount you wish to trade from a dropdown menu.