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[T107]Technical Analysis A To Z

by Stephen Todd, Ste

Here are the four most common mistakes that cause the majority of traders to lose money:

1. Forex Charts can't Predict the Future

Many traders believe that technical analysis can predict the future ? but they're wrong. Think about it - if technical analysis could predict the future, then we'd all know tomorrow's price today - and there'd be no market. Currency prices move due to a difference of opinion - and of course, if we all had the same opinion, prices wouldn't move!

There are several theories, and currency trading systems, that claim they can predict prices with scientific accuracy when forex trading. These include: Elliot wave theory, and trading systems based on the Fibonacci number sequence. Don't fall for them - they don't work!

2. Using Time Spans that are Too Short

Trading is not scientific ? it's an odds game. The aim of technical analysis is to get the odds on your side - and for this you need to work with valid data. This means having enough data to calculate the odds. Generally, you need at least a few weeks? data - preferably several months? data.

The biggest mistake you can make, is to fall for the myth of forex day trading. To think that it's possible to calculate the odds in a day, or less, is laughable. Yet, more novice forex traders try day trading, than any other method - and they get wiped out. If you think that you can make money executing trading signals in day trading, try to find a day trader who's made money in the market. Real money - not a hypothetical track record ? good luck on your search, I doubt you'll find even one.

If you base your forex trading strategy on day trading, say goodbye to your money!

3. Not Using Confirming Indicators

Many traders, when using technical analysis, like to buy into support, or sell into resistance levels - and hope they hold. Do this and you'll lose money. Why? Because you're trying to predict prices, by hoping and guessing - and the market will wipe you out.

If you want to trade the odds, use momentum signals to time entry to your trades - so you trade with price momentum. For example, if you were selling into resistance, you'd only do so if price momentum turned down below support. This way you're not hoping ? you're trading confirmation of price weakness - and the odds.

If you don't use momentum indicators in your forex strategy, you won't have the odds on your side.

4. Using Too Many Indicators

Many forex traders assume that the more indicators a forex trading system has, the better it must be - after all, 10 indicators must be better than 4 ? wrong!

It's a fact that simple systems work best in currency trading - as there are fewer elements to break. All you really need is technical analysis - to help you determine the price trend, support and resistance - and a few momentum indicators.

You don't get rewarded in forex trading for being clever - you get rewarded for being right with your trading signal - and the best way to do this, is to keep your forex trading system simple.

The above technical analysis mistakes, are commonly made by the majority of forex traders. If you want to enjoy currency-trading success, avoid making these mistakes - and you'll be on your way to making bigger FX profits by using technical analysis correctly.

FOREX Technical analysis trading can be very lucrative if you follow some simple basic rules so here are some simple rules that could make you a lot of money.

Basic rules for technical analysis trading FOREX are:

1.Use a simple system

This means support and resistance and a few filters ? We like stochastics and Relative strength Index (RSI) to time trade entry and Bollinger bands to project targets and isolate areas of value.

Don't: Buy a system from a vendor - you can't buy success.

In most cases if the vendor made money he would shut up and trade his own money.

Develop your own methodology, if everyone could buy success for a few hundred dollars then there would be a huge amount of winners in FOREX trading and there aren't!

Only you can give yourself success you're on your own and that's the only place to be ? All top FOREX traders rely on themselves.

Don't: Assume the more rules you put in your system the better.

It's a fact that most of the top systems are simple.

There is no correlation between complicated systems and success.

A simple system will be more robust and have fewer elements to break

2.Run profits and cut losses this way

It's a fact you need to run your profits to cover your losses.

Your system can make money only 30% of the time and still make huge profits if losses are a lot smaller than profits.

The best way to achieve this is to trade significant breakouts (i.e strong support and resistance that is seen as critical by the market) stops are tight and profits from significant breakouts are normally huge.

Fact:

Most major currency trends develop from new market highs ? so if you want to catch these trends, look up and research breakout methodology.

It's simple to understand, works and will continue to work.

Don't: Day trade FOREX! It will simply lose you your money quickly.

Volatility is random in daily periods, so technical analysis trading is a complete waste of time.

You will keep losses small and have plenty of them.

Of course, profits from winning trades (that's if you get lucky) will never be enough to cover the losses you have taken!

Don't: Trade to frequently.

Be patient and ONLY Trade low risk high reward set ups.

You don't get more money for trading more frequently - you get your payout for being right.

3.Take Open Equity Losses to get long term currency profits

Currency trading is risky but most novice traders try and restrict risk so much they create it.

Here are some pointers

Stop levels if trading against support and resistance are obvious place them and forget about them.

The major error most traders make is moving them to quickly and getting stopped out by normal market volatility.

Leave the market room to breathe and don't trail stops too quickly.

Its painful seeing dips in open equity in FX trading, but it's a great way to make big money from the big trends.

Don't: Forget to place stop on entry be disciplined! Never trade with a mental stop

Don't: Trail stop to quickly have a profit target and then tighten stops ? Until then leave them way back.

4.Look Then Confirm Then Enter

No FOREX trading method will work if you hope levels of support and resistance will hold.

Confirm that support or resistance will hold and don't predict. That's why you have other indicators to gauge price momentum.

Don't: Simply buy or sell into support or resistance and hope, it's the ultimate mugs way to trade.

The above 4 points are critical to currency trading success by technical analysis trading - so use them.

Article Source : Forex Analysis

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Both Stephen Todd & Kelly Price are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

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Kelly Price has sinced written about articles on various topics from RSS, Learn Trading and Forex Trading Forex. FREE ESSENTIAL TRADER PDF'S AND MUCH MORE On all aspects of becoming a profitable trader including features, downloads and some great FREE Tra. Kelly Price's top article generates over 165000 views. Bookmark Kelly Price to your Favourites.