5 Easy Steps To Improve Your Technical Analysis In Forex Trading

opportunities of currency trading, you need to be good at market analysis, especially technical analysis. It is an essential skill for a forex trader, and today, you will get to enhance your analytical skills. I am about to talk about 5 easy steps to improve your technical analysis in forex trading. 

Essence of Technical Analysis in Forex 

Before moving on to the ways in which you can improve your technical analysis, we need to briefly understand the essence of technical analysis and what it means for forex traders. Technical analysis is done using visual tools like price charts, which give us a complete overview of the market situation and allow us to dig into the details while reviewing the bigger picture. The Japanese candlestick price charts are the most commonly used chart type in forex as they are suitable for detailed analysis. Technical analysis can be conducted for both present and past as you get to choose between real-time price quotes and historical price data on all popular trading platforms (MT4/MT5). Technical analysis can be done a lot better using different indicators. In this regard, MT5 seems to be a better trading app as it has more indicators than its counterpart. 

Here, you can choose a timeframe that is tailored to your strategy, and it ranges from minute charts to monthly charts. The primary goal here would be to read and recognise price patterns and anticipate the possible price movements based on logical interpretations of these patterns. Based on this, you can find ideal trade setups with higher profit potential and proceed with planning your trades. When it comes to technical analysis, there are a lot of tools that you can use in conjunction with price action. Many simple to advanced technical indicators provide critical information using mathematical formulas, and adding some suitable indicators to your analysis will make your job easier and more efficient. 

The crux of technical analysis is supply and demand, which we are trying to detect with the support and resistance levels. Market sentiments do have a role to play in the trading activity, and the effect of fundamentals on trading psychology will also be reflected in the price charts. Many traders completely rely on technical analysis for all their trading decisions as they strongly believe that all the forces and factors that influence currency prices will be revealed through price movements. There is no need to look at them separately. 

However, there are times when technical analysis alone is not enough to decode the price fluctuations, and your predictions can often go wrong when the market direction contradicts your analysis and calculations. Thus, it would be wise to use a combination of technical and fundamental analysis as it allows you to make an informed trading decision with higher chances of success. But technical analysis should be the starting point for spotting market trends as well as for sailing through the sideway movements during consolidation.  

So, this was some surface-level information to get started with technical analysis. Now, let’s move on to the 5 simple steps to follow to improve your skills as a technical analyst. 

• Discover a technique that works and stick to it 

The problem with technical analysis is that it doesn’t have just one method or technique that works for all. Some traders may prefer to follow pure price action without using many indicators, and it yields good results, too, but others may not be able to work with naked charts, and what they need is a bunch of informative indicators to rely on. There are many popular indicators like Moving Averages, RSI, Bollinger Bands, MACD, Fibonacci Retracement levels and more, but finding what works the best might be a daunting task for a complete beginner. 

It is normal to get overwhelmed with the technicalities, but it is not ideal to keep jumping from one technique to another without spending enough time on the first one. So, I will advise you to discover one technique that makes sense and stick with it until you master it. Try that technique in a demo account and backtest your strategy to see how it works. If you don’t see any development for a significant period of time, you can think of switching from it, but if you see it working in your favour, then hold onto it for better results. 

• Choosing your Time Frame

The time frame you choose for technical analysis is very important as it plays a key role in your trading decisions. Beginners are often advised to start with longer timeframes as it allows them to study the market conditions in a comprehensive manner. On the other hand, shorter time frames are used by scalpers and day traders looking for opportunities to make some quick profits in real-time. The profit potential of trades will also change based on the time frame, and you can make use of various trading calculators to determine crucial values to test different trade scenarios.  

Many traders tend to rely on a single time frame for analysis, while some prefer to stay flexible as they switch between multiple time frames, looking for the best trading opportunities. Both approaches have their own pros and cons, and you need to consider all the possibilities while choosing the best technique for yourself. Multi-time frame analysis has many benefits but can also lead to confusion if you become overwhelmed with all the information. Sticking to a single time frame allows you to focus on one thing, but you may remain stuck with just one approach, limiting your growth. 

• Try out some old-school techniques 

We always talk about exploring new methods and experimenting with modern tools and techniques for improvement. But sometimes, the age-old techniques can work wonders for you, and thus, I suggest you try some old-school techniques that new traders often overlook. The forex market has indeed gone through a lot of changes over the years, but some basic methods will always come in handy while navigating the world of currency. 

For instance, a currency converter is a very basic tool that forex traders use, and there is nothing special or innovative about it. Still, it is also necessary in your toolkit, as doing all the conversions manually would be a lot of work. Similarly, price action strategies have been there for a very long time, but they are still just as relevant and effective as they were in the past. You just need to modify it and customise it as per your requirements. So, going back to the roots and using some simple tools can greatly enhance your analytical skills as a trader.    

• Learn more about the market 

The next step for improving your technical analysis is learning more about the market or the instruments you are trading with. When it comes to currency trading, you will be choosing different currency pairs with unique characteristics that need to be considered during analysis. You must select the most suitable indicators and analytical tools that complement the pair you are watching. 

For instance, you might be using one effective method for analysing some major pairs, but the same technique may not work well for trading exotic pairs as they differ vastly. If you want to diversify your portfolio by trading multiple asset classes apart from forex, then you need to find tools that are appropriate for that particular market. 

• Do more research 

Earlier, I advised you to discover one technique that works and stick with it to master it. But once you master that technique, you should not shy away from exploring other techniques; you need to do more research. You will likely find some spare time to read about various techniques, and you will come across something that strikes a chord in you, and it can turn out to be a valuable addition to your trading system. It takes time to develop analytical skills, and you should never stop learning new methods, as it truly helps in enhancing your skills.   

Final Thoughts

Finally, the steps I listed above are just a starting point for beginners, and you have a long way to go, as there is a lot more to learn and understand about the forex market and technical analysis. Technical analysis is an integral part of the trading process; analytical skills are essential to attain trading success. But having a risk management plan and emotional control is just as important.