Technical Analysis to Predict Price Movements

In brieft, technical analysis attempts to forecast future price movements by examining past market data.

Most traders use technical analysis to get a "big picture" or macro view on an investment's price history. Even fundamental traders will glance at a chart to see if they're buying at a fair price, selling at a cyclical top or entering a choppy, sideways market.

Technical analysts make a few assumptions as below :

• History repeats itself in regular, fairly predictable patterns. These patterns, generated by price movements, are called signals. A technical analyst's goal is to uncover a current market's signals by examining past market signals.
• Prices move in trends. Technical analysts believe price fluctuations are not random and unpredictable. Once an up, down or sideways trend has been established, it usually will continue for a period.
• All market fundamentals are reflected in price data. Moods, differing opinions, and other market fundamentals need not be studied.

Getting in and get out of the FX market at the right time

Traders rely on price charts, volume charts and other mathematical representations of market data to find the ideal entry and exit points for a trade. Some studies help identify a trend, while others help determine the strength and sustainability of that trend over time.

Technical analysis can add discipline and minimize emotion in your trading plan. It can be hard to screen out fundamental impressions and stick with your entry and exit points as planned.

While no system is perfect, technical analysis helps you see your trading plan through more objectively and dispassionately.

Price chart types

Bar charts
The most common type of chart. Each bar represents a period of time - a "period" as short as 1 minute or as long as several years. Over time, bar charts show distinct price patterns.

Point & Figure Charts
Point & figure patterns resemble bar chart patterns, except Xs and Os are used to mark changes in price direction. Point & figure charts make no use of time scale to associate a certain day with a certain price action.

Candlestick Charts
Instead of a simple bar, each candlestick shows the high, low, opening and closing price for that period of time it represents. Candlestick patterns provide greater visual detail as they develop.


Technical Indicator Types

Trend
Trend indicators (moving averages, trend lines) smooth price data out, so that a persistent up, down or sideways trend can be easily seen.

Volatility
"Volatility" (Bollinger Bands eg)refers to the magnitude of day-to-day price fluctuations, whatever their directional trend. Changes in volatility tend to anticipate changes in prices.

Strength
Strength indicators describe the intensity of market opinion on a certain price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of strength indicators.

Cycle
Cycle indicators indicate repeating market patterns from recurrent events such as seasons or elections. Cycle indicators determine the timing of a particular market pattern. (Example: Elliott Wave)

Momentum
Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest when a trend starts and lowest when the trend changes.

When price and momentum diverge, it suggests weakness. If price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)

Support/Resistance
Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)

How Long Have You Been Trading in Forex ?

Well, it is not simply a matter of how long you have been in forex trading.

The important thing still lies in your understanding of the forex market, how the currency pairs move relative to one another. It is not a matter of a "gut feeling" to short sell or buy without a purpose.

Also, how you can make use of fundamental news and technical analysis to aid you in your decision making process. Fundamental news like bank rates, GDP, employment figures etc will have impact on the current movement as in technical charting which will help you determine long term trends.

Going blindly into the forex buy/sell without basic understanding of the highly volatile currency market can prove disastrous for many newbie trader as you can easily lose tons of money within minutes as much as you can earn that much if you understand how it works.

Expert Advisors In General

The best expert advisers can help you to make a lot of money with forex trading, while in contrast, a bad EA can simply drain you out on your cash.

So how do you tell them apart ?

Online EA reviews can be a mixed blessing when it comes to something as important as an expert advisor. In case you do not know, an EA is an automated currency trading system that runs on the popular platform known as Metatrader 4. Basically, you hook up the robot to your broker's software platform, set it to trade on auto for you at the position size etc that you want, and go enjoy your day.

The problem of course comes if things go against you and it starts to lose your money instead of making it. This is always a danger with forex systems and even more when they are trading on autopilot so you may not be aware of what is happening. Hence, it is extremely important to run the EA on a demo account first until you have absolutely everything clear or at least grasp the basic understanding of how forex market moves vis-a-vis fundamental news and technical charting.

Reviews can certainly help you to narrow down your search when you are looking for a forex robot that will save you tons of time analyzing the market and placing your trades. However, there are two possible problems with reviews. One is that some reviews that you will find online are simply copied from the sales page for the EA itself and the person might not have used the robot at all. In this case you will usually see a very positive review with no indication of the possible downside.

On the flip side, a review from somebody who has actually used the software themselves can be very valuable because it will often give you hints and tips about how to get the most from it.

The other thing that you may come across is a strongly negative review from somebody who could not make the EA work for them. There may be all kinds of reasons for this which are not the fault of the EA itself. Often, either the person could not figure out how to set it up and became frustrated with it, or they set their risk too high. A common recommendation for risk is 2% per trade. The laws of statistics mean that setting your risk too high will always lead to a busted bank sooner or later, but people who do not realize this will often blame the system that they were using. This can lead to some very vitriolic comments and forum posts and of course it is never recognized that it is the fault of the trader. It must be the system's fault !

What you should be looking for when you search through reviews for the best expert advisors is a general consensus, a balance of views.

Rather than simply going by a star system or whether the person liked the EA, check for specific points such as these :

- Is it suitable for somebody at your level? Is it aimed at beginners or experienced traders? Do you need to be taking a certain position size or using a particular broker to use this system?

- Is it easy to set up, and how much does that matter to you?

- Does it suit your trading style in terms of the amount of risk (stop loss settings for instance) and number of trades?

You may need to read between the lines a little bit to work out some of these points. For example, most EAs will claim to work for people at all levels, but a system that only makes a couple of trades a week is not going to make you much money on a micro trading account unless you take huge risks, so that's why the number of trades can be important. However, many people who buy a new forex robot are also trading using other methods and then it does not matter so much if a robot only trades a couple of times a week.

So do check out reviews when you are looking for the best expert advisors, but follow your own agenda when it comes to how seriously you take them.

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