Forex Trading: Reasons Technical Analysis is Important

Forex Trading:  Reasons Technical Analysis is Important

While trading patterns can seem complicated and difficult to identify, some very common formations can be used for daily trading.  Some of the most well-known names include head-and-shoulders patters, double and triple tops (and bottoms), triangle patterns (ascending, descending, and symmetrical), and all of these have proven, over time, to give traders an edge when looking for enhanced gains because of their strong predictive sources.  

But perhaps the key benefit to technical analysis trading is that these patterns would be virtually impossible to identify without using price charts.  “Since charting software is free in most cases, and analysis can be quickly accomplished,” said Haris Constantinou, currency analyst at TeleTrade, “there is very little reason to avoid tapping into the discipline’s predictive power.”  But for some reason, many traders fail to understand that conventional trading methods can be enhanced in ways that dramatically increase overall profitability.   It can become very easy to fall into a standard routine and use only standard conventions where fundamental analysis becomes the basis for everything.

But since new and improved technology has removed the difficulty of performing complex mathematical calculations, and since many internet sites offer technical indicator software that can be inputted into your trading station, there is essentially no excuse for not using these tools, testing them in various forms, and implementing them in ways that heighten trading results in ways that were not previously possible.

Playing to the Strengths     

A final point on the benefits of technical analysis can be seen in the fact that technical analysis takes a lot less time to conduct and research than fundamental analysis.  While some might view technical analysis with skepticism because of this, there is a large amount of broker data that show the success of technical strategies being just as profitable as fundamental strategies – but with less time and effort spent on a daily basis.  

Price charts can, literally, provide a wealth of trading information in a very small amount of time.  Traders are quickly able to identify trends and latch their trades onto those trends.   Levels that mark significant areas of support and resistance can be seen at a glance.  Volatility levels, momentum levels, momentum direction, and pricing patterns are some of the key pieces on information that are available to technicians (and not as readily available to fundamental traders).  These key benefits will give you an edge when you are looking to step up your game as a trader and this will allow you to see markets events that are not visible to all participants. 

It should always be remembered that your pricing charts are telling you a story, not just about where a currency has been but in where it is going as well.  Pricing charts will enable you to see market activity in its purest sense.  But at the same time, pricing charts can give you a more complicated and deeper insight into markets and increase profitability over the longer term.