subject: Can Forex Technical Analysis Work For Forex Traders? [print this page] Can Forex Technical Analysis Work For Forex Traders?
The principle behind technical analysis is that markets repeat themselves. Students of technical analysis follow the theory that particular market formations and trends can be identified within the market. These repeating formations and patterns are identified by the use technical indicators and chart formations. This is the very thinking behind technical analysis. That previous market patterns and events from past markets will continue to act the same in the future.
Technical analysis does therefore have no room for random events. This approach is very different from that taken by fundamental analysts. Fundamental analysts instead view the market as efficient and driven by economic news flow.As every piece of market news is known to the market upon its release, the market is viewed as only ever reflecting true value.
The question as to whether technical analysis works has long been debated. However from studying past chart formations, repetition of market events can be clearly seen. In fact it is obvious that they do this regularly. Therefore the question instead should be if technical analysis works frequently enough to profit rather than if it works at all.
Often the fact that technical analysis works some of the time is attributed to the effects of so many traders following this approach. With so many traders entering and exiting the market at specific points, it is argued that to some extent, technical traders make their analysis a self fulfilling prophecy.
What it is important to remember as a trader is that the technical approach followed will need to provide us with more instances of repetition than uniqueness.We also need the profits won to be sufficient to cover for the times when technical analysis gets it wrong.
There are a range of schools of analysis under the Technical Analysis header. Common technical schools include support and resistance levels, Wave analysis and chart patterns. This highlights the fact that no one approach to technical analysis will work all of the time . If this was the case then there would only be one technical method employed.
Even though no single school of technical analysis is 100% accurate you can still use technical analysis to profit from your trading. The secret here is to combine approaches to add the greatest validity to your trading system. This will help to increase the accuracy of your trade entries and increase the profitability of your Forex trading.
Any successful trading approach should make use of more than one form of trade validation .It is suggested that any technical approach should also make use of fundamental analysis. Forex technical analysisand fundamental analysis should not be regarded as mutually exclusive. In referencing both approaches you will be better able to make the best trading decisions and have a greater potential to profit from your trades
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