Learn Forex Trading - Part 2 - Technical Analysis

Forex trading education - Technical Analysis

As you learn forex trading, you will soon realize that there are two kinds of traders out there, may be three. There are those traders who learn forex trading focusing mainly on technical analysis, I am one of those. I will explain why shortly. And there are those who learn forex trading focusing mainly on fundamental analysis. And there are those who learn forex trading combining both technical analysis and fundamental analysis. If you came to this lesson directly, then you may want to check Learn Forex Trading Part 1

My market activity is based on technical analysis. In my opinion, technical analysis provides the short-term trader, a solid basis for making intelligent buy and sell decisions. While learning forex trading, I quickly realized that the effect of fundamentals are all reflected on my chart. In my opinion, fundamentals while useful at times, posseses therir greatest value when one is considering investment into forex over a long term basis. Even so, I would rather look at a weekly or monthly chart if I had to trade on a long term basis. But I am fully technical.

Technical analysis reveals proven price patterns, support and resistance, break-outs and break-downs, etc. These are proven tools for a short term trader like myself. Inspite of these, technical setups and charts are just there to give you a general view of the market and to help you assess the odds of a particular trade. Nothing is certain. Charting don't work all the time. At times they fail, even when this happen, it still reveals valuable information to the trader who learn forex trading by listening to what the chart is saying. What I have noticed while learning forex trading is that the charts don't lie.

Before I delve into some of the technical tools you will learn in your forex education, I will like to give you a practical assignment. There are many brokers out there. Open a demo account, so that you can follow me and do what I explain and you will see it all come to play and why you can become a discipline and successful trader in one of the most difficult profession in the world. Don't be scared though.

So go get a demo account. By the way, my broker is FXCM. I like FXCM. Get a demo from them. It takes just about 1 minute to signup for a demo account.

OK, did you get your demo account setup? Great. You are learning forex trading practically now. The technical tools, I will be explaining shortly are those I use on my charts. I am a short term trader, which means I trade intraday. 5 and 15 minute charts. Sometimes, I glance through the hourly chart to see the bigger picture for the day.

On my chart, I have just 3 technical tools:

1: Linear Weighted Moving Average 14

2: Simple Moving Average 14

3: Parabolic Sar

I will be explaining all these and other technical indicators later.

For now login into your demo account. That is your fxcm trading platform.

Step 1: Click on the menu charts - open charts - chose the time frame 5 minutes.

Step 2: Click on the insert and then Add Indicators. A list of indicators will show up.

The first indicator on the list is Simple moving average. Click on parameters and just change the number 10 to 14 and click OK.

Step 3: Repeat Step 2, but this time using Linear Weighted Moving Average.

Step 4: Add the indicator "SAR" Just scroll down the list you will find it. Click on it and click OK.

You are ready to place your first trade. Just watch what is happening with those three indicators on the chart. When price is below all three, you only have to sell. If price is above all three its time to buy.

Practice, watch the demo tutorial. There is alot to learn, but basically, I just gave you my daily trade setup. You will learn forex trading by practicing over and over again on a demo account for at least 3 months, before you venture to trade with your hard earn cash. This setup will not always work, but it does 90% of the time.

So technically what are those indicators and there others? Yes, there are many indicators, but you don't need to know them all, but it pays to at least have some knowledge of these indicators of these technical indicators.

If you completed your practical assignment, it is now clear that technical analysis based on 3 basic principles

1: Price accounts for everything. Price falls and price rises. The reasons for these back and forth movement is not important.

2: Price move in trend

3: History will repeat itself ( Recognizable chart patterns repeat itself)

So as you continue to learn forex trading, note that price movement is the most important element of your technical analysis.

In part 3 of Learn Forex Trading, you will learn more about the technical indicators.