Many forex traders think technical analysis is akin to some kind of science where prices move to some mysterious theory but they don’t, they are a direct result of human nature. If you understand the formula enclosed and its significance, you could soon be making some big forex profits.
Prices move to this equation:
Fundamentals (supply and demand facts) + Trader perception of = Price
The news and supply and demand factors are important but it is human perception of them that makes the price. We all have the same facts to look at – but you, me and millions of other traders all have our own views and this mass view, equals the price.
Human nature is constant – we are not creatures of logic though, we are creatures governed by emotions. The emotions that dominate in forex trading and can be seen on a chart are: Hope, greed and fear.
Forex charts are not a science as many technical traders would have you believe, humans don’t conform to a scientific theory – but we do as a mass create high odds chart formations, as a direct consequence of our emotions. Our trading psychology repeats and will continue to repeat, as human nature NEVER changes.
Trends tend to reflect the long term supply and demand for the currency and can last for weeks, months or years and are easy to spot on a forex chart. Of course, any currency reflects the underlying health of the economy and economic trends last a long time.
As humans though, we have a tendency to push prices too far (both up and down) and these price spikes are pure emotion. Prices always return to fair value from these spikes and the fact there temporary means – They can be spttted and traded for profit.
Markets collapse when they are most bullish and rally when they are most bearish – this is human nature at work.
Price spikes can be traded for profit and they don’t just occur in long term time frames, they also occur in shorter periods within the main trend and traders will try and swing trade these overbought/ oversold scenarios.
Forex charts are a great way to trade because, you see the reality as it is – the fundamentals are taken into account and more importantly, all trader’s perception of them.
A technical analyst doesn’t care how or why prices move, he just wants to make profits when they do!
Charting as we have said is an odds game not a game of certainties – its an art and you have to learn the right formations and how to time your trading signals; this comes with practice and anyone can learn to use them. Furthermore, when using charts you only need a simple system based upon support and resistance and a few timing indicators and that’s it. In forex trading, simple trading systems work best, as they are robust and have fewer elements to break than complicated ones.
So if you want a great way to trade forex markets get your charts out and start practicing your art, it could make you big profits and bring you currency trading success!