Forex Education Part 4 – Important Factors To Know About Technical Analysis

One skill that every student must perfect as part of their Forex education is technical analysis of the charts. In simple terms, they are so important because they provide us with a real-time picture of the relationship between supply and demand. This is relative to all charts whether it is for a company, currency, commodity etc. Without the knowledge of understanding what the market is trying to communicate, your Forex trading changes definition to 'Forex betting'.

One factor that charts are missing however, is a psychological measurement. As many traders who have been on a Forex education programme will tell you, the stock market is heavily influenced by human perception, so one may argue we need a measurement of how calm or nervous investors are in order to identify which way the market is going to go. Other than price, we simply cannot measure this. For example, in 2008 the world markets experienced a huge loss with many businesses seizing to trade. Why did the global markets go down? Partly, it is because investors panicked and sold rapidly. Everyone else followed and the economy hit a slump that we were not prepared for. The point is this – Forex and other markets are fuelled by emotions. What does that mean for the Forex market? The answer is simple – the Forex market doesn't take any notice of anything unless it has something to react to. So, when you hear the news on a currency pair that you are trading, use your Forex education and react to it appropriately. Do not let emotions play with your mind but use the knowledge you have gained in your Forex trading course to your advantage.

A great example of how our mind is involved in trading are diamonds. They are expensive because they are scarce. Everyone believes and accepts the same notion hence why the price of diamonds is high. But, if there was an infinite amount of diamonds, they would be worthless. In simple terms, psychology takes over.

Technical analysis puts emotions at bay and objectivity at the forefront of your trading. If you have been taught how to trade Forex correctly on your Forex trading course you will know when your technical analysis tells you that you are wrong. For instance, if you have been stopped out of trading the Forex when going long, do not make a rookie mistake of hanging on to every single bullish news feed you can find. You do not control the market, it controls you. If your technical analysis tells you to exit the trade then this is what you need to do.

In summary, technical analysis allows us to gain a better perspective of the market conditions and that is why it is such an important part of your Forex education. Always follow your analysis and if it changes half way through a trade then change your strategy. This is a common occurrence in any market. At the same time, take notice of the price in the market you are trading. It is simply one of the most important factors as people use it to react to it.

By: Dragan Lukic

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Dragan Lukic is an expert on Forex Education. If you want to know more about our Forex trading course and how we can help you make money from trading the Forex, please visit the Forex Training Worldwide website.