1.) Charting Trends and Price Ranges Markets
Use long-term charts to decide between trends or fluctuating markets. Analysis begins with daily, weekly, monthly, and even charts tracing several previous years. A large-scale chart shows essentially the life of the market and provides a much clearer picture of long-term market perception.
Once you have drawn the joint long-term, you can draw some short term charts. Remember that the factor of chance in Forex is much higher among shorter terms within a chart. It's better to trade in the same direction as the trends in the medium and long term, even if it only operates at a very short notice. If there is a strong and definite trend, it is necessary to move on to other types of strategies.
2.) Follow the Trend
Once established, you only need to open positions in the direction of the trend. Market trends can be long, medium or short term. You must first decide what kind of strategy you want to follow: a long-term or shorter time. This decision will determine the type of charts to use. But the strategy will always follow the trend.
Should there be an upward trend regressions are expected in the price to buy a pair, to ensure a good entry price. In case of a downward trend, wait for a recovery in the price, before selling the coins. Market trends can be long, medium or short term.
3.) Locating Support and Resistance Levels
Find the support and resistance levels. It's best to buy near support levels and sell near resistance levels. The resistance level is usually a peak above the previous high. When resistance is finally broken, it automatically becomes a support. Likewise when a support is finally defeated, it becomes in turn a resistance.
4.) Retracements and Corrections
Generally the market correction, up or down, runs a significant portion of the previous trend. Corrections can be measured in an existing trend in simple percentages. A fifty percent trace above trend is the most common. The Fibonacci retracements of 38% and 62 % are also two of the highest levels followed by investors in Forex, including the biggest players, such as banks or financial institutions.
5.) Trend Lines
One of the simplest and most effective charting tools is trend lines. Draw a straight line connecting two points on the chart. If the trend is upward, a line is drawn below connecting two or more low points.
If the trend is down, a line is drawn over the chart also connecting two or more high points. Prices often respect these trend lines when approaching them. When a trend line is broken, this is often an indication of a change of the mainstream.
6.) Moving Averages
Moving averages often provide signals to buy and sell, which is why it is important to keep in mind. With the help of moving averages, it is possible to determine the state of a current trend.
One of the most common ways to use moving averages is the use of two different averages in the same chart, and wait for the crossing of the averages. If for example we have an upward trend and the prices were in a correction, at the time that a faster moving average (e.g. 10-day) crosses above a slower moving average (20 days for example), this it is probably a good buy.
These help us identify the markets in a state of overbought or oversold. While moving averages provide a confirmation of the market trend, oscillators can often tell the right time to open a trade.
Two of the most common oscillators are the Relative Strength Index (RSI) and the stochastic. The two oscillators operate on a scale of 0 to 100. When the RSI is above 70, there is an effect upon purchase, and when it is below 30, indicative of no over booking. The values of overbought / oversold stochastic are 80 and 20.
One of the most useful signals that provide the oscillators are the famous divergences. A divergence occurs when the direction of the oscillator signal differs from the direction of the same price. Such situations are usually a strong indication of a change in market trend.
8.) Moving Average Convergence-Divergence
Moving Average Convergence-Divergence (MACD) combines a moving average crossover with moving elements overbought / oversold oscillator. A buy signal occurs when the faster line crosses above the slower line, both being below zero.
Conversely, a sell signal occurs when the faster line crosses below the slower line, both being above zero.
The MACD histogram determines the difference between the two lines and gives an early warning of changes in the trend. This is called a histogram and uses vertical bars to show the difference between the two lines.
9.) The Average Directional Movement Index
The Average Directional Movement Index (ADX) helps determine whether a market is in a trend phase or is oscillating between ranges. This tool measures the strength of a trend or market direction, but does not indicate the direction. For that you should use other indicators or tools. Generally, a reading above 25 is an indication that the market is in a strong trend, but fluctuating between ranges.
10.) Further Training
Training in technical analysis is essential for every investor. Only you can improve and refine through practice and experience in this market. Continued reading and training is very important to find successful forex strategies which work best for you. If you are new to forex you can find basic strategies for beginners online.
Remember trading based on technical analysis also helps us to focus on our objectives and prevents trading forex based purely on emotions and impulses. Discipline is essential to achieve success with your forex trading strategies.