Many traders know what tools are needed for trading using technical analysis. For example indicators on platforms such as Moving Average and Oscillator, or custom indicators that can be installed alone. However, often beginner traders are still confused about the steps to use technical analysis for forex trading. In this article, we will provide a short guide to assist you in using technical analysis as part of the forex trading learning process.
1. Specify the timeframe to be used
Open the MetaTrader platform, then check the charts on a certain timeframe. Decide on what timeframe you want to trade. If you want to trade in a short period of time, choose a timeframe under daily (D1). Or if you want to frequently open and close trading in a day, please take timeframe H1 or smaller than that.
analysis and forex trading
2. Know the market conditions
The most important step in using technical analysis for forex trading is to know the market conditions. For that matter, you can not just open the chart then guess "this will surely be up". Such guesswork is the way people gamble, not trade.
Forex traders generally use tools such as trend line, oscillator indicators, or understanding of price patterns to determine market conditions and ongoing price movements. This identification is important, because technical indicators and strategies applied in trending, ranging, or choppy market conditions may vary.
In order to know the market conditions as well, traders can compare price movements on the charts at some timeframes. The goal is to ensure that open positions will not be crushed by movements at different timeframes.
3. Selecting technical indicators
Based on the consideration in the previous two points, the next step of technical analysis is to choose an indicator that is in accordance with market conditions.
If the market is trending, there will be very little use of RSI. Price movement with high volatility can be smoothing with crossover Moving Averages. Conversely, if the market is sideways, then Moving Averages will not be of much use. Can also choose an indicator based on the characteristics of pairs ditradingkan. For example, if trading in commodity currencies whose movements often follow a certain cycle, then the Commodity Channel Index (CCI) may be an option.
Indicators can be installed easily on trading platforms that have been obtained from the broker. Just click the "insert" menu, then you can see the various options indicator. Just click on one of the indicators, then it will appear above the chart, right at the timeframe of choice.
analysis and forex trading
Basically every trader can self-process any indicators that will be used, based on their respective understanding. Of course if you do not know any indicators, then it's good to learn first one by one. Next, combine these indicators to apply in a simple and easy to use forex trading system.
4. Modify the indicator
We can use technical analysis based on the default setting (as is) as it appears on the existing indicators in the trading platform. However, many traders can actually be superior because it took time to customize periods and other inputs on the indicators used.
The trick is very easy. Above the chart you are using, right-click, select "Indicators List". Then will appear window contains indicators that have been installed on the chart. Choose which indicator to modify. Next, click on "edit" on the right, then change the numbers in the window that appears afterwards. As shown in the picture below.
analysis and forex trading
For example, if using a Relative Strength Index (RSI), is the period 14 compatible with the timeframe used, or should it be reduced to 7? Things like this are often only answered after going through trial and error. For each trader, the answer may vary. Although you can also discuss it with more experienced traders to get directions to the "right path".
Look for trading signals
After technical indicators are installed and established, the next step would be to look for trading signals. Signal is a trading opportunity that arises from the movement of pair-pair price in the market.
What kind of signal does the trader look for? Signals can arise from interactions between prices and indicators, as well as relationships between indicators. In this case, "using technical analysis" means not just trading after knowing market conditions, but also confirming the signal first. If the price enters the oversold or overbought level, for example, then before the open position, make sure first whether there is a divergence. Then if there is a breakout in the market, then you can try to be ascertained with the crossover.
Generally, there are five types of trading signals when you are trading using technical analysis:
- Channels
Channels are formed from two parallel trendlines that include price movements from two different directions. Usually used to identify a breakout or a certain trading potential.
- Crossover
Crossover occurs when one indicator band with a certain value across the indicator band with a different value, where it signals a change in momentum. Crossover can be obtained by installing some Moving Average with different periods above the chart, or from different band crossings on the Oscilator. As can be seen in the circled section on the screenshot chart below. Seen some crossover between three Moving Averages, each with periods of 20, 60, and 100, on the EUR / USD H1 chart.
analysis and forex trading
- Divergence
Divergence occurs when the price and the oscillator indicator move away from each other. For example, if the price drops to a new low, but the oscillator goes higher, then it could signal a reversal of the downtrend to an uptrend.
- Breakout
Breakout occurs when the price moves past a certain level, the highest or lowest level in a given period of time.
- Price Patterns, such as triangles, flags, head and shoulders, etc.
6. Analyze the results obtained, then execution trading
With all the tools that have been applied, you can now use technical analysis. Cernalah signals that appear and do confirmation. Separate which strong signals can be executed with the most optimal profit potential, which signal is weaker, which ones are too high, and so on.
Remember! Trading execution is only for opportunities with the highest return and lowest risk based on possible scenarios.
1. Specify the timeframe to be used
Open the MetaTrader platform, then check the charts on a certain timeframe. Decide on what timeframe you want to trade. If you want to trade in a short period of time, choose a timeframe under daily (D1). Or if you want to frequently open and close trading in a day, please take timeframe H1 or smaller than that.
analysis and forex trading
2. Know the market conditions
The most important step in using technical analysis for forex trading is to know the market conditions. For that matter, you can not just open the chart then guess "this will surely be up". Such guesswork is the way people gamble, not trade.
Forex traders generally use tools such as trend line, oscillator indicators, or understanding of price patterns to determine market conditions and ongoing price movements. This identification is important, because technical indicators and strategies applied in trending, ranging, or choppy market conditions may vary.
In order to know the market conditions as well, traders can compare price movements on the charts at some timeframes. The goal is to ensure that open positions will not be crushed by movements at different timeframes.
3. Selecting technical indicators
Based on the consideration in the previous two points, the next step of technical analysis is to choose an indicator that is in accordance with market conditions.
If the market is trending, there will be very little use of RSI. Price movement with high volatility can be smoothing with crossover Moving Averages. Conversely, if the market is sideways, then Moving Averages will not be of much use. Can also choose an indicator based on the characteristics of pairs ditradingkan. For example, if trading in commodity currencies whose movements often follow a certain cycle, then the Commodity Channel Index (CCI) may be an option.
Indicators can be installed easily on trading platforms that have been obtained from the broker. Just click the "insert" menu, then you can see the various options indicator. Just click on one of the indicators, then it will appear above the chart, right at the timeframe of choice.
analysis and forex trading
Basically every trader can self-process any indicators that will be used, based on their respective understanding. Of course if you do not know any indicators, then it's good to learn first one by one. Next, combine these indicators to apply in a simple and easy to use forex trading system.
4. Modify the indicator
We can use technical analysis based on the default setting (as is) as it appears on the existing indicators in the trading platform. However, many traders can actually be superior because it took time to customize periods and other inputs on the indicators used.
The trick is very easy. Above the chart you are using, right-click, select "Indicators List". Then will appear window contains indicators that have been installed on the chart. Choose which indicator to modify. Next, click on "edit" on the right, then change the numbers in the window that appears afterwards. As shown in the picture below.
analysis and forex trading
For example, if using a Relative Strength Index (RSI), is the period 14 compatible with the timeframe used, or should it be reduced to 7? Things like this are often only answered after going through trial and error. For each trader, the answer may vary. Although you can also discuss it with more experienced traders to get directions to the "right path".
Look for trading signals
After technical indicators are installed and established, the next step would be to look for trading signals. Signal is a trading opportunity that arises from the movement of pair-pair price in the market.
What kind of signal does the trader look for? Signals can arise from interactions between prices and indicators, as well as relationships between indicators. In this case, "using technical analysis" means not just trading after knowing market conditions, but also confirming the signal first. If the price enters the oversold or overbought level, for example, then before the open position, make sure first whether there is a divergence. Then if there is a breakout in the market, then you can try to be ascertained with the crossover.
Generally, there are five types of trading signals when you are trading using technical analysis:
- Channels
Channels are formed from two parallel trendlines that include price movements from two different directions. Usually used to identify a breakout or a certain trading potential.
- Crossover
Crossover occurs when one indicator band with a certain value across the indicator band with a different value, where it signals a change in momentum. Crossover can be obtained by installing some Moving Average with different periods above the chart, or from different band crossings on the Oscilator. As can be seen in the circled section on the screenshot chart below. Seen some crossover between three Moving Averages, each with periods of 20, 60, and 100, on the EUR / USD H1 chart.
analysis and forex trading
- Divergence
Divergence occurs when the price and the oscillator indicator move away from each other. For example, if the price drops to a new low, but the oscillator goes higher, then it could signal a reversal of the downtrend to an uptrend.
- Breakout
Breakout occurs when the price moves past a certain level, the highest or lowest level in a given period of time.
- Price Patterns, such as triangles, flags, head and shoulders, etc.
6. Analyze the results obtained, then execution trading
With all the tools that have been applied, you can now use technical analysis. Cernalah signals that appear and do confirmation. Separate which strong signals can be executed with the most optimal profit potential, which signal is weaker, which ones are too high, and so on.
Remember! Trading execution is only for opportunities with the highest return and lowest risk based on possible scenarios.
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