TOWER ONE FX GROUP

Introduction

In FOREX Technical Analysis we are not trying to forecast the market. Rather we are aiming at decoding the market by viewing it from different aspects. In my FOREX Trading Course “7 Steps To Profitable FOREX Trading” I make a nautical analogy that I will expand upon here. If you are trading without technical analysis, you are sailing without a crew, compass and a nautical chart. It needs an enormous amount of experience to be able to navigate correctly in this way. Naturally one could only navigate in known waters. It is, however, possible. But why make it difficult and excruciatingly time-consuming?

FOREX Technical Analysis gives us solid reference points, enabling us to understand approximately where we are. Judging distance or knowing where you are at open sea is very difficult because of the absence of reference points. With the help of reference points (land masses, light houses etc) we can map out on our nautical chart where we are, our destination and how we will get there. The same is true for technical indicators, the help us navigate to our final destination, a net profit.

Of course it is not that easy, any sailor knows that there are many unknown factors that can severely interfere with your laid out route. The weather (or market conditions in our case) can change fast, putting you in a precarious situation (this is where Trade Management enters).

Indicators are just that - indicators. They indicate where we are on the chart giving us information about a different aspect of raw price action as seen through that particular indicator. Different indicators return different aspects. Remember though that all of them are using the same source, raw price. There is only so much information you can extract from it. Keep this in mind when reviewing each indicator.

Financial time-series like FOREX price data are dynamic, non-linear, non-stationary and chaotic. All indicators mentioned below are static and linear, ie not very good at modeling the data we have at hand. Some have developed adaptive (dynamic) versions, but I can honestly say that their efforts are crude and not very impressive. Don't believe claims about a super indicator that is ultra easy to trade and that will make you a millionaire in a week. We simply do not have the technology to accurately model financial time-series at this time of writing (2007). That doesn't mean we cannot profitably trade the markets, only that it takes more effort and time to reach our goal.

FOREX Technical Analysis in itself does not say anything about future prices. Actually, I have found it impossible to know exactly when the market will turn and how far the move will extend. However, when we build a Trading System we use indicators to create rules that identify high probability areas of entry and exit. So in a Trading System we are in a sense forecasting the market. Otherwise, how can we know if we want to go long or short?

If you are building a Trading System it is important that you know your indicators. Study the pages below diligently and it will be much easier. I have made a small FOREX Charting course with live charts. Have look at it!

For simplicity I have divided up FOREX Technical Analysis in several different categories or chapters, as can be seen below. Go through each chapter and study in detail the contents. And as always, you have to provide Mind and Motivation!

Table of Contents

Data Fields
FOREX Chart Types
Bar Frequency
Candlestick Patterns
Forex Pivot Points
Trendlines
Moving Averages
Graphical Indicators
Chart Patterns
Chart Studies
Oscillators