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Why I Chose to be a Technicalist in Forex Trading

In the world of forex trading, there are two main approaches to market analysis: fundamental and technical. When I began learning to trade, I tried both to understand how the market works. However, over time, I gravitated more towards technical analysis. Here are the reasons why I chose to become a technicalist, along with some of the technical indicators I use and the reasons behind their selection.

  1. Results in Numbers

    • Technical Analysis vs. Fundamental Analysis
      • Fundamental Analysis: Relies on economic news, financial reports, and macroeconomic data to predict price movements, often involving speculation on how news will affect the market.
      • Technical Analysis: Based on historical price data expressed numerically on charts. This provides concrete and measurable results, such as opening, closing, highest, and lowest prices.
    • Advantages:
      • Numbers in technical analysis are more objective and can be directly measured.
      • It allows us to make trading decisions based on concrete historical data, not speculation about news or economic events.
  2. Clear Trend Indication

    • Importance of Knowing Market Trends
      • Reading Trends: As a trader, the ability to read trends is key to taking profitable positions. Whether the market is bullish, bearish, or moving sideways, all can be read through technical analysis.
    • Advantages:
      • Technical analysis provides tools to identify and follow trends more easily.
      • Indicators like Moving Average, MACD, and RSI help confirm whether a trend is ongoing or reversing.
  3. Recurring Patterns on Charts

    • Pattern Recurrence in Technical Analysis
      • Chart Patterns: In technical analysis, chart patterns like Head and Shoulders, Double Top, or Double Bottom often recur. These provide signals about potential future price movements based on historical patterns.
    • Advantages:
      • Understanding these patterns allows us to make better predictions about future price movements.
      • These patterns have proven effective in various market conditions and have a strong foundation in technical analysis.

Technical Indicators I Use

  1. Moving Average (MA)

    • Description: Moving Average calculates the average price over a specific period. There are several types of MA, such as Simple Moving Average (SMA) and Exponential Moving Average (EMA).
    • Advantages:
      • Simple and Easy to Understand: MA provides a clear picture of the market trend direction.
      • Trading Signals: MA can be used to determine entry and exit points by observing the crossover between short-term and long-term MAs.
  2. MACD (Moving Average Convergence Divergence)

    • Description: MACD is a momentum indicator showing the relationship between two Moving Averages of prices.
    • Advantages:
      • Reading Momentum: MACD helps in reading the strength of trends and potential trend reversals.
      • Trading Signals: MACD provides buy or sell signals through the crossover of the MACD line and the signal line, as well as through convergence/divergence.
  3. RSI (Relative Strength Index)

    • Description: RSI is a momentum indicator measuring the speed and change of price movements to determine overbought or oversold conditions.
    • Advantages:
      • Market Condition Identification: RSI helps in determining whether the market is overbought or oversold.
      • Divergence: RSI is also used for trading divergence, indicating potential trend reversals.
  4. Fibonacci Retracement

    • Description: Fibonacci Retracement is a tool used to identify support and resistance levels based on the Fibonacci sequence.
    • Advantages:
      • Key Level Identification: Fibonacci Retracement helps in identifying price levels that might act as support or resistance.
      • Universal Patterns: This tool is based on mathematical patterns often found in nature and financial markets.
  5. Candlestick

    • Description: Candlestick charts show price information over a specific period, including opening, closing, highest, and lowest prices.
    • Advantages:
      • Market Information: Candlesticks provide insights into price movements and market psychology.
      • Candlestick Patterns: Patterns like Doji, Hammer, and Engulfing can provide trading signals.

Why I Remain a Technicalist

Advantages of Being a Technicalist:

  • Data Transparency: Technical analysis provides transparent and measurable data for making trading decisions.
  • Consistency: Technical analysts can follow tested trading systems and make decisions based on consistent charts and indicators.
  • Recurring Patterns: Market history often repeats itself, and these patterns can be used for better predictions.
  • Simplicity: Technical analysis, especially with the use of indicators and chart patterns, allows for a simpler approach compared to fundamental analysis, which often involves many variables.

Personal Experience and Application

Tips for You:

  1. Try Different Indicators: There is no perfect indicator for all situations. Experiment with various indicators and find the combination that suits your trading style.
  2. Test in a Demo Account: Before applying strategies in a real account, test them in a demo account to see how your indicators and strategies work.
  3. Learn from Experience: Your trading experience is the best teacher. Learn from every trade, whether it is successful or not.

By understanding and applying the principles of technical analysis, you can strengthen your trading foundation and achieve more consistent results in the forex market.

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