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abhiware

Hi there,

First understand that technicals are only HALF of the picture. You also need fundamental analysis. Technical's cannot work 100% fully, nor can just simply trading based on news trades. You need to know the following three items to trade and make money:

1. Technical Analysis (Charts, Indicators, Highs/Lows, Candlesticks, History etc.)
2. Fundamental Analysis (News releases, Economic Factors, Environmental factors)
3. Market Sentiment (What other traders in the market and analysts believe will be happening)

Technicals alone will never work fully, HOWEVER it does work quite well for a while. Psychology plays a big part in technical trading. If the price starts to go up, you get a lot of traders wanting to "Sell" or you have those who were in a sell position hitting a stop loss and hence again initiating a selloff as well. This will push the market down a little bit while people start realizing that the market trend may have changed to go up. Once again the market will move higher as more people get on the band wagon and start buying in. At this point after making some money, people then "TAKE PROFITS" early and hence you get another selloff of orders being closed and another temporary down. Finally because the price is at a lower level (though not as low as before) anyone else who was left to get into the market because they got in late, tends to buy into the market and push it to a maximum high. At this point everyone is taking their profits and selling off, but also those who see these highs also start to put in sell orders and the price reverses back down a little bit. People take their profits and then at this point a "BUY" is put into place when everyone is closing their sell order, we have a temporary up because of the lack of selling pressure. After this the price goes up slightly and we get people selling again at a higher price at which point the price goes down again and we start the process all over again. THIS PSYCHOLOGICAL PATTERN I JUST DESCRIBED is known as the ELLIOT WAVE THEORY which is amongst one of the many very popular methods followed.

This is why technical analysis SEEM'S to work for a while...but you must remember that NEWS AND ECONOMIC FACTORS ARE VERY IMPORTANT!

If you play WITHOUT knowing for example that (Its July 29th, 2010 right now) BP Had an oil spill in the united states and that the job loss rate in the united states economy is not good and hence the state of the economy is much more lower than normal and that the european stress tests went well and that germany's economy (Part of the EU) is strong, then you would not know WHY the price for EUR/USD is going in an UP TREND.

But by knowing the economic forces and news, you can better trade your technicals.

SENTIMENT is what others are thinking, and more importantly look for the market sentiment of the BIG PLAYERS. Remember, 1000 small players playing a $250 micro Forex account online may make the market move a few pips, but if a large player is doing buy orders in the amount of 50 million or so in a day (Just an example, I dont know any real figures), that ONE big player could make the market move much more than what you or I could do. If you get several large players like that doing that, then guess what? THE MARKET MOVES IN THEIR DIRECTION! NOTE: The major players in the market usually on a daily are THE BIG BANKS, and hence why checking out what the banks are doing would be a good idea.

Knowing what the market is thinking as well is important.

I use ForexPros.com to learn about all these things, and for news releases specifically I use ForexFactory.com as they have an instant refresh button and release news faster than any other news site I have seen.

about 1 year ago