The Ultimate Guide to Technical Analysis in Forex Trading

The Ultimate Guide to Technical Analysis in Forex Trading Abstract This e-book explores a no-nonsense approach to using technical analysis to escalate forex trading profits. You’ll learn important strategies and proven techniques of becoming a better trader.

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Table of Contents What is forex trading? ................................................................................................................................... 3 Market size and liquidity .......................................................................................................................... 3 The 8 Most Traded Currencies...................................................................................................................... 4 1.The Mighty Dollar (USD) – $ ................................................................................................................ 4 2.The European Euro (EUR) – €............................................................................................................... 4 3.The Sterling Pound (GBP) – £ ............................................................................................................... 5 4.The Japanese Yen (JPY) – ¥ .................................................................................................................. 5 5.The Swiss Franc (CHF) ......................................................................................................................... 5 6.The Canadian Dollar (CAD) .................................................................................................................. 5 7.The Australian Dollar (AUD) ................................................................................................................ 6 8. The South African Rand (ZAR) ............................................................................................................ 6 Forex Technical Analysis ............................................................................................................................. 6 1. Chartism/ charting..................................................................................................................................... 7 a) Trends ................................................................................................................................................... 8 b) Support and resistance .......................................................................................................................... 8 c) Trend lines & channels ......................................................................................................................... 9 2. Forex indicators ...................................................................................................................................... 11 a) Leading indicators or oscillators ......................................................................................................... 11 i) Stochastic......................................................................................................................................... 11 ii)Parabolic SAR ................................................................................................................................. 12 iii) Relative Strength Index (RSI) ....................................................................................................... 13 b) Lagging indicators or momentum indicators ...................................................................................... 14 i) Moving Average Convergence-Divergence (MACD) .................................................................... 14 ii) Moving averages ........................................................................................................................... 16 iii) Bollinger bands ............................................................................................................................. 17 3. Theories................................................................................................................................................... 18 i) The Elliot wave theory ....................................................................................................................... 18 ii) The Dow theory ................................................................................................................................. 19 iii) Gap theory ........................................................................................................................................ 19 iv) Number theories ................................................................................................................................ 19 a) Fibonacci numbers .......................................................................................................................... 19 How To Find, Enter And Manage Forex Trades......................................................................................... 20 Finding the Entry Signal ......................................................................................................................... 21 Finding the Exit Point ............................................................................................................................. 22 e-book by www.forextradingbig.com. ©20171

Locating Your Profit Target.................................................................................................................... 22 Placing Your Trade ................................................................................................................................. 22 Managing Your Trades ........................................................................................................................... 23 Conclusion .................................................................................................................................................. 23

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What is forex trading?

Forex trading or currency exchange refers to the trading of international currencies against one another in a global, decentralized financial market that operates 24 hours a day, with the exception of weekends.

Forex is the short form of the term Foreign Exchange, and it is also referred to as FX. The business of trading currencies is not carried out in a physical “place�; exchange takes place using the over-the-counter (OTC) technique through a platform provided by forex brokers.

The electronic trading of currencies proliferated during the mid 1990s, and currently it is practiced in almost every corner of the globe.

Market size and liquidity The foreign exchange market is reputed to be the biggest financial market in the globe. The market boasts of a daily turnover of approximately $5 trillion, which is about 53 times the size of the New York Stock Exchange. Thus, the forex market is absolutely huge and offers wonderful opportunities to investors.

The foreign exchange market has many participants. Some of them are individual retail investors, financial institutions, corporations, securities dealers, and governments.

It is of essence to note that anyone can take part in forex trading as long he or she has adequate capital and the necessary knowledge.

In forex trading, the United States dollar is the king! It is the most liquid currency, constituting about 85 per cent of all transactions. The euro comes in second at about 39 per cent, Japanese yen at about 19 per cent, and British pound at about 13 per cent.

It is important to remember that since every transaction entails two currencies, the volume percentages of all individual currencies totals 200 per cent and not 100 per cent.

The dominance of the United States dollar in currency exchange is attributed to many factors.

Some of which are it being the reserve currency of the world, the United States being the biggest economy of the world, the political stability experienced in the United States, and the widespread use of the United States dollar in cross-border transactions in many places around the world.

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The 8 Most Traded Currencies The forex market offers high profitability potential for all kinds of traders and financial investors.

The best opportunities for profits in this highly liquid market are often found by trading the most liquid and most traded currencies which also charge the narrowest spreads.

To position yourself to profit from the market, you better learn which are these most traded currencies and the central banks behind them plus any unique characteristics that may impact on prices.

1.The Mighty Dollar (USD) – $ Over 85% of all currency exchanges involve the dollar as one half of the currency pair.

For this reason, almost every forex trader keeps a sharp lookout for the decisions made by the US Federal Reserve which is America’s central banking body.

The Federal Reserve has an organ within it known as the Federal Open Market Committee (FOMC).

It is this FOMC that is responsible for US monetary policy and dollar interest rates, both of which have a direct and instant impact on forex market prices for the USD.

2.The European Euro (EUR) – € This is considered the mighty dollar’s nemesis and is controlled by the European Central Bank which is headquartered in Frankfurt, Germany.

The bank’s executive council works in much the same way the FOMC acts for the US Federal Reserve. e-book by www.forextradingbig.com. ©20174

The council formulates and supervises monetary policy and sets interest rates.

3.The Sterling Pound (GBP) – £ Referred to as the queen’s currency, the British Sterling pound is one of the most traded currencies globally.

It is issued and controlled by the Bank of England (BoE). The bank’s 9-member Monetary Policy Committee is responsible for determining currency interest rates and England’s monetary/fiscal policy.

4.The Japanese Yen (JPY) – ¥ The Japanese Yen is considered as Asia’s champion. It is a stable currency with very low interest rates and that makes it popular for carry trades and for trading against currencies that experience high fluctuations.

The currency is issued and controlled by the Bank of Japan (BoJ) which also governs all aspects of Japan’s fiscal policy, market operations, and economic analysis.

5.The Swiss Franc (CHF) It is popularly referred to as the banker’s currency as it is a stable, high value currency from a country that is favored by international bankers, corporations, and large investors.

Unlike other central banks which are government bodies, the Swiss National Bank is a corporation that is both privately and publicly owned and operates under special regulation.

The governing board of the bank is responsible for the country’s economic and financial stability and major policy decisions are made by 3 heads of major banks who meet every quarter.

6.The Canadian Dollar (CAD) Nicknamed the Loonie, the Canadian dollar is backed by a low-inflation economy and is issued and controlled by the Bank of Canada (BoC).

Almost similar to the Swiss National Bank, the BoC is treated as a specially regulated corporation where the country’s Ministry of Finance directly owns shares.

The CAD tends to move in ranges of around 40 pips and is tightly related to the price of crude oil.

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7.The Australian Dollar (AUD) Issued and controlled by the Reserve Bank of Australia, the Aussie dollar is tightly intertwined with commodity prices especially gold and silver.

The Reserve Bank’s 6-member board makes decisions pertaining to interest rates, inflation control, and general monetary policy.

Of the mentioned currencies, the AUD offers the highest yield and is a favorite with carry traders especially when paired up against the Japanese Yen. Like most other currency majors, it trades at an average of 30 to 40 pips.

8.The South African Rand (ZAR) This is the new kid on the block and is viewed by investors as a strong emerging opportunity.

With a structure similar to that of the Bank of England, the South African Reserve Bank is the monetary authority that decides, implements, and oversees monetary policy including interest rates.

Unlike most other banks, the South African Reserve Bank is fully privately owned by about 600 shareholders.

A 14-member board that meets 6 times each year chaired by the governor steers the bank’s activities.

Forex Technical Analysis Technical analysis is one of the main types of analysis used to predict the movement of currencies in the foreign exchange market.

In as much as there is a marked difference between technical analysis and fundamental analysis, both are important in forecasting the behavior of the forex market.

Ultimately, they have the same objective: to assist traders forecast the movement of the market.

Essentially, technical analysis focuses on historical price patterns and trends in the forex market with the aim of predicting the possible direction of currency prices.

While technical analysts may use different tools and concepts in trying to accurately time market moves, the common tool used by all is the chart. This is why at times followers of technical analysis are referred to as “chartists.”

It is important to note that technical analysis is based on the following three major assumptions: e-book by www.forextradingbig.com. ©20176



Market action is supreme

Technical analysts believe that every fundamental condition, such as state of the economy, social issues and political factors, that could affect the behavior of the market is already illustrated in price movements.

Therefore, technical analysts are only concerned at the kind of movements the charts make, not the reasons behind the movements. 

The movement of currency prices follow trends

Followers of technical analysis believe that the constant fluctuation of currency prices in the forex market takes place in an orderly manner, which is both systematic and easy to predict.

There are three main trends in the currency market: upwards, downwards, or sideways. After a trend has been established, currency prices often tend to obey that pattern before forming another one. 

History always repeats itself

The movement of currency prices has been tracked for more than 100 years. And, over time, a number of repetitive patterns have been discovered.

The manner in which these patterns are formed is an indication that human psychology does not experience much change over time.

Thus, technical analysts often study historical price movements because they believe that price will behave the same way it did before.

There are three main schools used in technical analysis in forex trading: 1. Chartism/ charting 2. Forex indicators 3. Theories

1. Chartism/ charting Technical analysts often use forex charts to forecast future market movements.

A chartist in essence believes that the movement of the currency prices are not random, but can be forecasted through a study of past trends and other tools in technical analysis.

Here is a description of some of the methods used in charting:

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a)

Trends

A forex trend generally refers to the direction in which the market is moving.

As stated previously, the movement of currencies normally occurs in three trends: upwards, downwards, or sideways.

As such, chartists often study the charts to try to identify any of these trends before placing trades on their trading terminals.

In an uptrend, the overall direction of the currency pair is upward i.e. the price is rising.

In a downward trend, the overall direction of the currency pair is downward i.e. the price is falling.

And, in a sideways trend, the overall direction of the currency pair is see-saw i.e. the price is moving up and down without having any definite direction.

A common saying about forex trends counsels, “The trend is your best friend.�

For technical analysts, these wise words teach that placing orders in the direction of the prevailing trend will often lead to more success.

Here is a diagrammatic description of the types of trends:

b) Support and resistance Support and resistance are one of the most commonly used concepts in the world of currency exchange.

Generally, support and resistance are terms used by technical analysts to describe price levels on charts that tend to act as hurdles to prevent the price of a currency pair from moving towards a certain direction. e-book by www.forextradingbig.com. Š20178

Support refers to a certain price level on charts that tends to hold the price of a currency pair above; that is, it acts as the floor that prevents price from penetrating.

On the other hand, resistance refers to a certain price level on charts that tends to hold the price of a currency pair below; that is, it acts as the ceiling that prevents price from penetrating.

Here is a diagrammatic representation of support and resistance:

The above diagram represents an uptrending market, which is moving back and forth as the price of the currency pair is rising.

The highest point it touches before going back is what is called the resistance level. As the price of the currency pair continues to rise, the lowest point it touches before moving up once more is called the support level.

Therefore, this is how resistance and support levels are continually being created as the price of a currency pair rises and falls. If it were a market in a downtrend, the opposite would be true.

c) Trend lines & channels In forex trading, a trend line is a line that is drawn on a chart to depict the prevailing direction of price. When drawn in the approved manner, they can make out very profitable trade opportunities.

As earlier mentioned, when trend lines are drawn, they help traders know the current trend of the market i.e. whether it is an uptrend, downtrend, or sideways trend.

When parallel trend lines are drawn at the same angle of the prevailing trend of the market, then a channel is created. There are three types of channels: i)

Ascending channel

ii)

Descending channel e-book by www.forextradingbig.com. Š20179

iii)

Horizontal channel

As portrayed in this diagram, in an ascending channel, the peaks form higher highs and higher lows:

As portrayed in this diagram, in a descending channel, the peaks form lower highs and lower lows:

As portrayed in this diagram, in a horizontal channel, the market is ranging:

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2. Forex indicators In the foreign exchange market, indicators are essential in exhibiting the graphical representation of the rise and fall of currency prices. There are two types of indicators: Leading indicators and lagging indicators.

a) Leading indicators or oscillators In general, leading indicators or oscillators spot trading opportunities before the market trend is established.

These indicators usually signal “buy” or “sell” when the previous trend has run its course and the market is ready to experience a reversal.

Examples of such indicators include stochastic, parabolic SAR, and Relative Strength Index (RSI). i) Stochastic The stochastic is an indicator that enables traders gauge overbought and oversold conditions in the market.

The major concept behind this indicator according to its creator, George Lane, is based on the notion that rising prices are likely to close next to their previous highs, and declining prices are likely to close next to their previous lows.

Here is how stochastic indicator appears on charts:

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It is important to note that the stochastic indicator is marked from 0 to 100. And, when the stochastic lines are over the 80 mark, then it signals that the market is overbought.

On the other hand, when the lines are below the 20 mark, then it signals that the market is oversold. The 20 and the 80 levels are also referred to as “trigger levels�.

The basic rule when using stochastic to trade is to enter buy positions when the market is oversold and enter sell positions when the market is overbought.

For example, when the indicator has been showing overbought conditions for some time, then it is likely that a reversal to the downside is bound to happen. ii)Parabolic SAR Parabolic SAR (Stop And Reversal) is a simple technical indicator that is used by most traders to identify where a trend might be ending.

The indicator places a series of dots, or points, either above or below a currency price.

Here is how the parabolic SAR indicator appears on charts:

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The positioning of the dots is used by traders as a means of identifying trade opportunities.

When the dots appear below the price of the currency pair, it is interpreted as a bullish signal; that is, traders expect the price of the currency pair to maintain an upward trend.

On the other hand, when the dots appear above the price of the currency pair, it is seen that the bears are in control and the price of the currency pair is likely to maintain a downward trend.

The parabolic SAR is perhaps the easiest indicator to use when trading since it assumes that price is either on an uptrend or on a downtrend.

As such, this indicator identifies the best trading opportunities when the market is trending, and when there are extended uptrends and downtrends. iii) Relative Strength Index (RSI) The Relative Strength Index, or RSI, is the same as the stochastic indicator in that it also enables traders measure overbought and oversold conditions in the market. RSI is also scaled from 0 to 100.

The price of a currency pair is deemed to be overbought when the RSI nears the 70 mark, meaning that a reversal to the downside is imminent.

On the other hand, when the RSI nears the 30 mark, it signifies that the price of the currency pair is getting oversold and a reversal to the upside is imminent.

Here is how the RSI indicator appears on charts:

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b) Lagging indicators or momentum indicators On the whole, lagging indicators or momentum indicators spot trading opportunities after the market trend is formed.

These indicators usually identify trade opportunities when the previous trend has been exhausted and the market is ready to experience a reversal.

A major advantage of lagging indicators is that their delay compels traders to wait for sharp and clear signals before pulling the trigger. As such, they are less likely to be wrong.

Examples of such indicators include the Moving Average Convergence-Divergence (MACD) and other moving averages. i) Moving Average Convergence-Divergence (MACD) The Moving Average Convergence Divergence, commonly referred to as MACD, is a popular and resourceful technical analysis tool mainly used as either a trend or a momentum indicator.

Generally, MACD shows the connection between two moving averages of prices.

This indicator is computed by getting the difference between the 12 and the 26 exponential moving averages (EMAs). It is of essence to note that the 12-period EMA is the faster one while the 26-period EMA is the slower one.

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The difference between the faster and the slower moving averages is what is shown as a single line, which is the MACD main line.

Usually, MACD indicators consists of one extra line that is a simple moving average of the main line and it normally has the default setting of 9 in a majority of the trading platforms. This single line is used in identifying turns.

It is of essence to point out that the two lines that are drawn are not moving averages of the price but they are moving averages of the difference between the slower and the faster moving averages.

The MACD histogram stands for the difference between the MACD line and its 9-period simple moving average.

The histogram is usually positive when the MACD line is above the 9-period simple moving average and negative when the MACD line is below the 9-period simple moving average.

The numbers 12, 26 and 9 are the typical settings used with the MACD. Nonetheless, other numbers can be used based on the tastes and preferences of the trader.

Here is how the MACD indicator appears on charts:

One of the major ways of trading using MACD is using the cross-over of the moving averages.

Because the two moving averages are not moving at the same pace, it is certain that the fast moving average will respond to price action much faster than the slow moving average.

If a new trend is established, the fast moving average will be the first to respond and eventually cross the slow moving one.

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And, if this “cross-over” occurs on charts, the faster moving average begins to diverge or move away from the slow moving one.

For example, when the fast moving average has closed below the slow one, it can signal a start of a downtrend; thus, traders can start looking for short opportunities in the market.

It is important to note that when the moving averages cross one another, the histogram momentarily vanishes because the difference between the moving averages at that time is zero.

In conclusion, traders use MACD cross-over points to identify places of entry and exit in the foreign exchange market. ii) Moving averages Moving averages are also one of the common tools used by technical analysts in forex trading.

Simply, moving averages is a method used in smoothing out the rising and falling of currency prices over a certain time period.

A moving average simply eliminates the noises and chaos and makes the charts easier to spot opportunities for entering buy or sell orders. There are two main types of moving averages: Simple moving averages

Simple moving averages (SMA) or arithmetic moving averages are the commonest type of moving averages.

A simple moving average is computed by adding up the closing price for a definite number of time periods (for example X) and then dividing this total number by the number of time periods (X).

For instance, if you want to plot a 20 period simple moving average on a 60-minute chart of GBP/USD, you would add up the closing prices of the previous 1200 minutes (60×20) or 20 hours, and then divide that number by 20.

If you do this, you will have the currency pair’s closing price for the preceding 1200 minutes, and, if you continue and connect the closing prices with one another, you will come up with a simple moving average.

Simple moving averages are very important in technical analysis because they assist in gauging the overall sentiment of the market and determining the big picture and therefore ease the process of spotting profitable trade opportunities.

A main weakness of the simple moving averages is that they are susceptible to spikes and this can give false signals when trading.

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A simple moving average can indicate that a new trend is about to be formed while in reality nothing serious has happened.

Exponential moving averages (EMA)

Exponential moving averages (EMA) are similar to the simple moving averages; however, the only difference is that the former puts more weight on what has been recently taking place in the market. EMA’s are also referred to as exponentially moving averages.

Since EMA’s put more emphasis on the recent happenings in the marketplace, they get rid of spikes that may give false signals. Also, EMA’s have a lag (delay) because they move faster than SMA’s.

Here is how SMA’s and EMA’s appear on charts:

iii) Bollinger bands Bollinger bands are chart indicators that are majorly used for gauging the volatility of the market.

Bollinger bands comprise of three lines: upper band, lower band and middle band. It is essential to note that the middle band is just a simple moving average. The upper band and the lower band are important in measuring deviations.

Essentially, Bollinger bands assist traders in knowing whether the market is quiet (low activity) or whether it is loud (high activity).

When the market has low activity, the upper and the lower bands contract; that is, become close together. On the other hand, when there is high activity in the market, the bands expand; that is, spread apart. e-book by www.forextradingbig.com. ©201717

It is important to note that one attribute unique about Bollinger bands is that price usually tend to return to the middle of the bands.

As such, price usually touches the upper and the lower band and come to the middle of the band.

It’s also important to note that when the upper and the lower bands squeeze together, it normally signifies that a breakout either to the upside or the downside is imminent.

Here is how Bollinger bands appear when plotted on charts:

3. Theories As stated in the earlier sections of this e-book, technical analysts believe that the fluctuation of currency prices take place in a systematic and easy-to-predict manner.

And, this rising and falling of prices has enabled chartists to develop a number of theories to predict the movement of currency prices in the market. Here is a description of some of the major theories used in technical analysis:

i) The Elliot wave theory The Elliot wave theory is based on the concept that the fluctuation of the prices of currencies in the market create “waves” that are easy to spot.

This theory emphasizes that the market movements occur in repetitive patterns that are interpreted to be the emotions of the investors caused by outside influences or the prevailing sentiment of the traders at that time.

According to this theory, the upward and downward swings in price coming from the prevailing sentiment constantly shows up in the same repetitive patterns. e-book by www.forextradingbig.com. ©201718

And, these upward and downward swings are referred to as “waves”. As such, if a trader can accurately predict the repeating patterns in prices, he or she is able to spot profitable trade opportunities in the market.

ii) The Dow theory The Dow theory is regarded as one of the foremost authorities in the field of technical analysis.

Truth be told, technical analysis as we know it today is grounded on this theory, which is currently more than 100 years old.

Basically, this theory asserts that the assets values are already reflecting the underlying fundamental condition of the assets. Thus, by assessing those conditions, it is possible to predict the major trends in the foreign exchange market.

Here is a list of the basic tenets of this theory: 

    

The market discounts everything. Dow theory asserts that the actual price of a currency pair is its true price.Therefore, the information about the price of a currency pair has already been taken into account and its reflected in its present price.

The three individual types of trends are primary, secondary and minor trends.

There are three phases of primary trends. These are accumulation, public participation, and excess.

The market indexes usually confirm one another.

The volume confirms the trend.

The reversal of any trend will take place only with concrete and well-grounded evidence.

iii) Gap theory In forex trading, the gap theory holds that gaps are always filled. Gaps are places on charts whereby there is a lack of any trading activity.

iv) Number theories Number theories are employed by technical analysts in predicting places of potential price movements. The main number theory is Fibonacci numbers a) Fibonacci numbers Fibonacci numbers are technical analysis tools that are often used in currency trading. Fibonacci retracements are usually used for identifying support and resistance levels. The three most common levels are 38.2%, 50.0% and 61.8%.

And, Fibonacci extension levels are usually used in identifying places for taking profits. The extension levels comprise of all levels of the Fibonacci retracement drawn beyond the standard 100% level. The three most common levels are 161.8%, 261.8%, and 423.6%. e-book by www.forextradingbig.com. ©201719

It is important to note that Fibonacci numbers work best in trending markets; that is, in uptrending or downtrending markets.

Here is how the Fibonacci numbers look when applied on charts:

How To Find, Enter And Manage Forex Trades The forex market used to be an exclusive club for the big boys such as banks, financial institutions, governments, and high currency retailers who would set up shop strategically at airports, sea ports, and border points. Then came the internet and the whole house of cards came tumbling down.

The forex market became a free for all and anyone with a few dollars to spare and some basic knowledge of using a computer could trade 24 hours a day. While this lucrative form of investment has created instant millionaires, it has just as much created paupers.

This is because most newcomers succumbed to the hype of instant riches and failed to do their homework before placing their money on the line.

The real trick in forex success is using technical analysis in knowing which trades to enter, when to enter, and when to exit.

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Finding the Entry Signal The first step to profitability is finding a trade worth risking your money on. Therefore, your very first decision is to choose your preferred currency pair to trade.

For instance, let us use the GBPUSD as it is one of the most traded, attracts the least spreads, and is easier to understand its workings. Once you decide on the forex pair to trade in, start scanning your price charts at a time of day when you are relaxed and fresh. This price chart scan should e done at the same time of day each day.

One of the best time periods for scanning your price charts is between the time the New York market closes and the time the European market opens. During this period, the forex market is relatively quiet especially in terms of your currency pairs though there is still some considerable activity being generated by the Asian market.

When scanning through the price charts, the shrewd trader is looking for 3 key things. The first is the price trend for the currency pair. The second is the price levels while the third is the price action.

This can be done by following a strategy of noting where the lower lows and higher highs lie.

The trader should also mark out the low highs and the low lows. Additionally, check the direction of the daily 8 and 21 Exponential Moving Averages (EMAs).

One profit-rich combination you should keep a watch out for is price action combined with horizontal price levels. Mark out any other core levels you may come across on the chart but

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avoid marking out all kinds of levels. The core levels constitute the main resistance and support levels.

These core levels help you determine whether your currency pair prices are trending or consolidating. With this information and the drawn horizontal core levels, the trader can then search for price action signals.

Now, professionals understand one thing. Forex trading is all about trends and it rarely pays to go against the crowd. So the best place to enter a trade is when the price is at or near the resistance and support levels within a particular trend.

Finding the Exit Point The best way to manage your exit is by placing a stop loss order and a take profit order. The stop loss minimizes your losses in case things go wrong while the take profit locks in your gains in case of a market reversal.

Note that these two forex trade exit orders need to be put in place at the same time that you enter the trade so as to avoid exposing your funds to unacceptable losses.

Thus, the best way to figure out where to place your stop loss is by being disciplined and using a well formulated risk management strategy. Always avoid making a stop loss order that has a risk reward level of more than 1:1.

Locating Your Profit Target Most forex traders deem as preferable a profit target that provides a risk reward ratio of at least 1:2. Remember to be modest and not greedy in your expectations so as not to lose on gains made.

Similarly, do not let fear hinder you from aiming for reasonable profits.

Once you have determined how much profit you are aiming for, that will be the point of placing your take profit order. Always check to ensure that no core resistance and support levels are in the way for your take profit level. If there is, you might consider lowering your expectations a little or forfeiting the trade altogether.

Placing Your Trade Once you have identified your entry point and exit points, you need to act fast to set up the trade with your broker. The process will differ from one broker to another and depending on the trading platform in use.

Always double check that all your parameters are correct as per your analysis. The worst mishap for any trader is realizing that you had the right idea but used the wrong figures after you have made a loss.

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Managing Your Trades Once you have done the analysis and set your parameters then entered the trade, you now embark on the difficult part of the trade.

This is the point where most novice traders fail as they overreact to market changes due to panic or greed. This part of the trade should actually be the easiest as all it needs is for you to patiently wait out the trade. You can check from time to time the progress but it is much wiser to just let it work according to your analysis.

Conclusion Technical analysis is an influential and profitable strategy to use in trading forex. This type of analysis concentrates on historical price patterns and trends in the forex market with the objective of identifying potential trade opportunities.

As described in this e-book, there are many tools and concepts used in technical analysis. And, mastering to use them can enable a trader reap massive profits from trading currencies online.

However, it is important for traders to avoid crowding their charts with any kind of indicators, moving averages, or Fibonacci retracement tools.

The trick is to master how to use two or three and use others secondarily to confirm trade entries and exits.

Furthermore, it is important that you keep your approach as simple as possible and trade only what you see, not what you think. You are welcomed to read other articles on the site (www.forextradingbig.com) and discover how to achieve this.

The fault most newbie traders make is to complicate their trading and this makes them lose a lot of money. Technical analysis, when correctly mastered, can make the difference between a losing and a winning trader.

Happy trading!

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