The standard text book definition of technical analysis is that technical analysis is an attempts to forecast future price movements by examining past market data.
Forex technical analysis is a game of odds not of certainties, so forget about forecasting or predicting with scientific accuracy, no one can achieve that.
I try to explain the usage of technical analysis in my system based on theses equation:
Price= fundamental + trader psychology .
Fundamentals have an influence on price – all traders have the facts at their disposal but they see them in their own way and this mass of millions of people determines forex prices.
Human psychology is constant and never changes.
Traders will always be influenced by emotion and these emotions of greed and fear, will push prices to far away from fair value and these price spikes are easy to see on forex charts.
The important point to keep in mind is that trader psychology recurs - and so do chart patterns.
When using forex charts you don’t care how and why prices move, you simply look at the reality of price and try and make profits from the moves.
Of course, all people use forex charts in different ways and it’s an art not a science.
Technical analysis allows me to anticipate certain market activity before it occurs. These anticipations are drawn from previous chart patterns, probabilities of certain trade setups and my experience of the price pattern. Through some period of time, my anticipation eliminates the need for over-analyzing market direction as the possibility of me identifying clear and objective areas of significance. I read on the chart and anticipated to the direction of a trend and follow it through to a profit. I don't try to predict the future instead I create strategies that have a high probability of succeeding - situations where a trend or market movement can be anticipated.
Of cause, everybody is seeking to the top or the bottom of a price. If everybody could achieve that consistently, he or she has found the holy grail of trading. Unfortunately, many of us have probably tried picking tops and bottoms in the past and are through with the game. Perhaps than we are already following in the footsteps of many professional traders, who attempt to find situations where they can anticipate a move and then take a portion of that move when the setups occur.
When deciding on whether or not to make a trade, we have our method of entering and exiting the market – it should be decided on these before clicking the buy/sell button. As technical traders I used certain tools couple with recognizable chart patterns that have occurred in the past with a certain measured result. As a technical trader we should have a good idea of what the outcome of a trade will be as it plays out. If the trade is going against us soon as we enter and it doesn't turn around within the next few bars, odds are that our analysis weren't correct and cut loss. However, if the trade does go in our favor within the next few bars, then we can begin to look at moving the stops up to lock in gains as the position plays out.
Objectivity in trading the fast and highly leverage forex is essential to trading survival. Technical analysis provides many views of anticipation in a clear and concise manner, but as with everything else in life, it doesn't provide a guarantee of success. However, by sticking to a trading plan day in and day out, our emotions are minimized and we can greatly increase the probability of making a winning trade. With time and experience, you can learn to anticipate the direction of your trades and improve your chances of achieving better returns.
See the 30 min chart of USDJPY below;
The US dollar was bullish last week and USDJPY has been on the upward moved from the 92 level, crossed the 93 and finally the 94 level. Most of us was anticipating that it will touched 94.60/70 level to form the long term double bottom. Instead during the
The double top has the target price at 93 but the fall was fast and sharp that it spike down to a 92.50. The fall should be anticipated when it fall below 94 and 93.80 within few minutes.
Yesterday, during Asian session, the USDJPY fall slightly and consolidate at 92.8 – 93 . About 30 minutes after European open, the EURUSD showed weakness i.e. US dollar gained some strength. The USD/JPY has benefited from the USD strength early in European trading. Within three hours, the cross moved up from 93 to 94.80 (the green rectangle). The move comes with risk sentiment improving in the wake of news Citibank is in talks with federal regulators for the
