Here is a complete guide on the so-called Technical Analysis applied to Forex trading.
A true pillar of Online Trading , knowing the fundamentals of this methodology is a necessary aspect to be able to invest successfully.
|❓ What is it?||Technical analysis|
|🎯 What do you study?||Price movements|
|⭐️ What is it for?||Make correct predictions|
|📚 Where to study?||LiquidityX Free Ebook|
|📈 How to apply it?||Demo account|
|🏆 Best platform||Metatrader|
|🥇 Best software||MetaStock – ProRealTime – VisualTrader|
In this section we will take care of offering a complete overview of technical analysis, with clear language and suitable even for novices in the sector.
What is technical analysis?
We can define technical analysis as a methodology aimed at examining and predicting price movements in financial markets. It is, therefore, a predictive study to be carried out through the use of charts, indicators and price history.
The idea behind technical analysis refers to the fact that ” history repeats itself “, so by knowing the trend of the previous charts it will be possible to identify with good probability the price movement in the future.
The father of technical analysis is Charles Dow , an American financial journalist who first developed a series of postulates designed to define the subject as a whole. Having become very famous thanks to his intuitions, the well-known “Dow Jones” Stock Index takes his name.
This “technical” methodology contrasts with fundamental analysis , more oriented to the macroeconomic study of price variables. However, in recent times there are more and more traders who mix these two approaches, in order to do Forex Trading with precision, accuracy and above all in a profitable way.
Does technical analysis really work in Forex trading?
To find out if technical analysis really works, you need to learn how to correctly configure all its parameters.
The subject is very broad, however to define the operation of technical analysis we must resort to some essential tools:
- Real-time graphics
- Time frame to use
- Forex indicators
In the first case, therefore, we must choose an excellent b roker Forex with charts of all major assets in this specific case with the Cross of major currencies, always updated in real time.
The study of the graph will be the basis of our activity as a technical analyst. In this approach, the so-called Japanese candles play a crucial role. Also called Candlestick , they indicate the following price movements:
Therefore, they are a very useful tool to better define the behavior of a given price.
What is the best way to configure them? Simple, choosing the Timeframe that suits us best. These are the most common:
- 5 minutes
- 15 minutes
- 30 minutes
- 4 hours
- 1 day
Depending on the time period you set, each Japanese candle will give us an indication of the movements that took place in that time range.
Now that it will be clearer to analyze the chart, all that remains is to choose the Forex indicators to use for our strategy. Moving averages, Fibonacci, RSI and many others are very useful trading tools for choosing the right time to enter the market.
How to trade with technical analysis?
Once the bases are defined, we can continue and enter the operational area.
How to trade with technical analysis? To invest successfully in the Forex market it will be necessary to follow 5 steps:
- Choose a broker
- Select the currency exchange rate
- Define the strategy
- Use indicators
- Manage risk
By following these guidelines, perhaps by practicing on a demo account, you will be more likely to make a profit on the Forex market.
The first step is to open an account with a specialized Forex broker . Updated charts, low spreads, and numerous indicators available.
Not forgetting security: let’s only trust certified and licensed platforms.
Activating an account is simple, you just have to complete the registration, provide the required documents and proceed with payment by card, bank transfer or virtual wallet such as Paypal.
The Forex market is full of currency pairs , majors or exotic. It will be difficult to apply the principles of technical analysis in each pair, so it is important to choose 6 or 7 crosses to follow and specialize in them.
Our suggestion, at least for beginners, is to invest with liquid currency pairs: they are the ones that most accurately meet the indications of technical analysis.
Specifically, all pairs with Euro, Dollar, Pound and Japanese Yen are perfect to start investing in Forex.
To define our Forex Trading strategy we must ask ourselves: what kind of trader do we want to be?
We have the Scalper , which opens and closes many trading operations every minute. Or the Day Trader , the most common type, which provides for the opening and closing of operations within 24 hours.
There are also many Swing Traders , or those who keep a trade open even for 2 or 3 days. Finally, the so-called Long Term Traders who invest long-term, with open operations even for weeks.
Choosing what type of investment to adopt is a crucial step. A Scalper requires little capital and can concentrate his business even in a few hours a day. Certainly more capital will be required for long-term transactions.
Defining this aspect will help us better understand how many hours to spend trading and how much capital to invest in the Forex market.
The indicators are a key part of the world of Forex and trading in general.
These are useful tools to better define our operational strategy. Often, based on mathematical calculations, they provide precise and exact indications on specific aspects of the market.
What are the most used indicators in the Forex market? These are the main ones:
- Moving averages
- Price lines
- Elliott waves
Different in complexity and in the indications provided, they should be carefully studied and tested on the demo account, as they will be a crucial part of our Forex Trading activity.
After establishing our strategy, it will be important to better manage investment risk .
How to do it? There are several options. First of all, the broker comes to our aid with Margin , which is a threshold below which our account cannot go down. In this way we safeguard our capital without running the risk of turning negative.
Even Stop Loss is a very useful tool to manage risk. Every time we open a trade, we must provide an indication of a price level that will be our maximum loss.
The SL is, therefore, a true “lifeline” that will allow us to know in advance the maximum amount that we are willing to lose for each of the trading operations.
Finally, for a complete overview of the strategy, here is Money Management for us. With this methodology we will risk no more than a percentage established for each operation.
Suppose we have a capital of € 100 and a MM set at 5%. This means that for each trade we will not risk more than € 5. In this way we will better manage our capital, avoiding taking unnecessary risks or concentrating money on a few operations.
The best brokers for forex trading
We open a specific section to select the best Forex brokers on the market .
Given the importance of regulation, the platforms that we are going to list will also allow us to answer some questions that many beginners ask themselves.
How much money do you need to invest in Forex? Many brokers require a minimum deposit of only € 100 as in the case of Plus500 or € 200 as for eToro . In short, low figures that will allow you to invest without too many risks.
Where to study the Forex market? No need to buy expensive books or participate in expensive seminars. The best brokers offer well-done educational sections full of useful information to study in the best way.
Thousands of traders have downloaded the liquidityx , full of practical examples and specific to Forex, just to have a clear and complete basis on the matter.
The first option when investing in Forex is undoubtedly eToro .
Broker with more than 14 million clients around the world, allows you to operate in the currency markets with the following advantages:
- Excellent operating platform
- Low spreads
- Dozens of currency pairs available
- Possibility of automatic trading
With eToro it will be possible to invest both directly, through CFD contracts , and automatically.
Through Copy Trading , the best traders (Popular Investor) are selected and their operations are copied with one click. A practical and profitable method to invest in Forex based on what the best ones do!
This double option has allowed eToro to become a broker among the TOP of the world and all its qualities can also be tested in a demo account:
A professional option to invest in Forex is the one offered by LiquidityX .
Excellent world-famous broker, allows you to speculate on Forex with excellent conditions:
- Metatrader 4
- Private account manager
- Trading signals
In particular, thanks to the partnership with Trading Central , the broker’s clients will be able to receive real-time signals with accurate information on how and where to enter the market.
In the Forex market these signals are very useful: we will receive a notification that will tell us which Cross to trade and which CFD to activate, up or down.
Not forgetting the aforementioned eBook , a complete guide from A to Z to learn all the secrets of Forex!
To request trading signals and a demo account to test them, here is the link:
Pros and cons of technical analysis
This methodology is undoubtedly a cornerstone of trading, especially for the Forex market. However, it is convenient to analyze the specific pros and cons of this discipline.
- Possibility of approaching the market in a professional way
- Be able to read and analyze charts
- Accuracy at the time of market entry
- Investment options applied by thousands of traders worldwide
- Absence of 100% certainty in our operations
- You need to complete the analysis with the fundamental
It is clear that the advantages of technical analysis far outweigh the disadvantages. Especially in the Forex market it is an essential tool, necessary to obtain long-term profits.
Insights | Technical analysis books
Such a vast discipline has been covered by numerous books that explain how to invest in Forex , focused precisely on technical analysis.
To better understand each aspect, here are some helpful solutions:
- Technical analysis of financial markets (Murphy)
- Stock market technical analysis (Serrano)
- Technical analysis and financial markets (Defendi)
- Fundamentals of technical analysis (Peralta)
However, as anticipated, our suggestion is to start with a free course offered by the broker. The quality is excellent and there is also the possibility to immediately put the theoretical notions into practice thanks to the demo account (free!).
Technical analysis courses
In addition to the books, it is very useful to delve into the topics related to Trading through quality Forex courses .
What are the best technical analysis courses? Here we list a ranking with the most popular in Spain:
- Trading Academy: by eToro and specialized in Forex and graphical analysis
- xStation – XTB academy is perfect for studying the basics of technical analysis
- Markets Education: Training section full of videos, tutorials and educational material
In particular, the Trading Academy is highly appreciated because it allows you to acquire all the basics to be able to trade as a Trader in the Forex market and perhaps try to become a professional thanks to the Popular Investor program, also managed by eToro.
The XTB xStation is very popular in Spain thanks to the highly appreciated detailed webinars and free training material from the best traders in the world.
Markets is no exception, offering a course available in PDF and packed with ideas to better understand how financial markets work, including Forex.
The peculiarity of these courses? They are all free! Simply register with the Broker and have unlimited access to the educational area: a perfect solution for beginners who are taking their first steps in the world of Forex Trading.
Technical analysis software
Forex traders often choose to rely on external Forex robots to improve their analysis skills and have valid decision support when investing.
What are the best technical analysis software? The most widespread and popular are the following:
Let’s find out how to best use them.
The proprietary technical analysis software of the MetaQuotes group (the makers of MetaTrader) is the most successful among European traders.
It offers an accurate analysis on Daily or on other Timeframes, depending on the version chosen. Thanks to a powerful and perfect programming language for MT4, it allows you to design, configure and develop effective Expert Advisor or custom indicators.
The price ranges between € 300 and more than € 1,000, depending on the version chosen.
ProRealTime technical analysis software has been a huge hit with investors for years. The reasons for its fame lie in the first place in the possibility of taking data directly from the stock exchanges, live and without requotes.
Also, a very intuitive interface and dozens of different indicators will greatly aid the decision-making ability of the trader during technical analysis and the market entry phase.
Specialized commercial advisers will help the customer to choose the most suitable version for him. The price? It starts with a monthly subscription of € 29 for the basic version.
This is another one of the best technical analysis software: VisualTrader . Also available in the app, it offers powerful and real-time graphics, as well as the ability to configure custom trading systems.
The advantage of this software is that it provides effective trading signals after in-depth indicator-based analysis. Auto trading is also perfect to set up in VisualTrader, which can be implemented on all major stock markets (including forex).
Its application is also very popular, optimal for managing operations even when we are on the go.
Technical analysis tutorial
Here is an excellent video tutorial that explains step by step what technical analysis is and how it works. Edited by Zero Trader , this video is perfect for those who take their first steps in this world:
In this in-depth study, from Inversiones24 we have made a complete overview on technical analysis, a cornerstone of Forex and online trading.
Anyone who approaches the financial markets should study this discipline and learn to handle it, since it represents the basis for being profitable in the long term .
EBooks, demo accounts and additional services offered by the best brokers will help us familiarize ourselves with technical analysis from the first steps!