Tuesday, June 24, 2008

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How Indicators and Patterns Point the Way to Forex Profits

If you have done even beginning research into trading, technical indicators and charting will become part of your vocabulary. Technical analysis uses price and volume information to try to predict where prices will go in the future.

A huge number of indicators have been developed to help traders, and many are very complex mathematically, but all of them are essentially a computation using the price and volume data. The goal is to learn to use some of these technical indicators in a system to guide you in your entry and exit decisions in the market. Without a system, your odds of success are practically zero as most traders will let fear and greed control their decisions, which is a recipe for failure. Combining the right group of technical indicators, with discipline and adequate trading capital, has been the road to fortune for many traders. If you are going to use primarily technical analysis, you need to find a system that you are comfortable with. Good software programs will include some indicators and systems to get you started. The art is creating a trading model with technical indicators and money management principles that reflects your personality and trading philosophy.

With trading you want to spot the patterns with the best chance of success, and trade them for profit. There are many different methods and tools utilized in technical analysis, but they all rely on the same principles - that price patterns and price trends exist in the market and that they can be identified and turned into profit opportunities.

Traders rely on the historical fact that certain chart patterns are consistent, reliable and repeat themselves. It is these patterns which are the core of Technical Analysis. However, the question of whether or not these patterns on charts can always accurately predict future price movements of a stock is (and probably always will be) up for debate between Fundamental and Technical Analysts.

Data on the FOREX market has been collected for the last 100 years, over that time certain patterns have become emergent. These can form the basis of important patterns that can help predict the future market direction. The first assumption is that all securities have the tendency to form patterns in their fluctuations, which is fine, and is often the case, but the market is volatile and often unstable.

These patterns are easily discernable to the chart technician. The fact that history repeats are evident by the patterns on the chart that repeat time and time again. The same can be said for price patterns and indicator readings; no two are ever exactly the same but they are similar enough that they can be classified and you can draw a prediction as to where prices are likely to move on completion.

With some study of indicators, systems and patterns you will find a trading method that works for you and that will keep your emotions to a minimum and hopefully your profits to a maximum.

About the Author

eWebMedia researches and publishes helpful articles on a number of popular topics. For more on trading, check out the trading site at Forex Trading


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