The financial markets are filled with many opportunities that traders try and capitalize on each day. Investors try and formulate the best strategy, which gives a good risk-reward and win rate. They plot various lines on the chart and give them different names to help with their analysis.
There are two types to analyze the forex markets. One is to use the economic events and the incoming news, which is called the fundamental analysis. The other method includes plotting price action, trend lines, support and resistance lines, etc and is called technical analysis.
Important Things
We have to consider the following things before diving into the terms of foreign exchange currency technical analysis.
• Trading strategies may perform extremely well under certain conditions and pairs while failing for others. They can differ from one other by the amount of profit generated each month.
• It is crucial not to ignore risk management for a particular trading strategy. While some plans may allow you to trade aggressively, it is vital to control the lot size.
• The mindset of a trader is also important in this regard. A good strategy will not perform if an investor does not have a solid attitude. Greed, fear, and euphoria should be at an arms-length while trading. Don't get emotional during FX trading, stay objective and analytical.
Important Terms
Let us go through some crucial terms in technical trading.
Support And Resistance Lines
Support and resistance lines are the areas where the market has bounced of previously. IF this point is situated above the current price level, it is called resistance, while on the lower side, it is known as the support.
Supply And Demand Zones
Supply and demand zones are similar to support and resistance lines. These are areas where there are lots of buyers and sellers are accumulated. When the price reaches this point, it experiences a rise or a drop. The supply zone is located at the top while the demand is at the bottom.
Fibonacci Intervals
Fibonacci intervals are essential for measuring a retracement in a trend. The levels of 38.2%,50%, and 61.8% hold a significant value as the market continues the trend after this level.
Trend Lines
Trend lines highlight the possible points where the market will continue to bounce and move in one direction with momentum. In an uptrend, the price makes higher highs and lows, which can be observed using a trend line.
Indicators
Trading indicators such as moving averages, RSI, MACD, etc., are frequently employed in technical setups. They can help identify essential entry points or set up the stop loss and take profit for each position.
Candlestick Patterns
Candlestick patterns are also present in technical trading, which help in getting in and out of trades. Bullish and engulfing candles are frequently employed.
Important Technical Strategies
Let us take an insight into different strategies that can work on most financial assets.
Moving average crossover is commonly used in technical trading alongside Fibonacci intervals. Two MAs of 50 and 20 periods are inserted to implement this, and a crossover is observed. This should match one of the important levels in Fibonacci intervals that we have mentioned previously.
Image 1. The trader plots the Fibonnaci intervals and uses the moving averages to identify the market's bullish opportunity.
Another strategy is to use the market trend and employ the candlestick analysis for taking a bias. For example, a trader identifies a bullish trend and looks out for bullish engulfing candles on a retracement. When the market shows the respective point, they can take the buy.
Image 2. The trader plots arrowhead where they plan to take a buy position in a possible uptrend. The market retraces to a certain level and then makes a slight bullish engulfing pattern where the buy order is placed.
Now you know some of the top technical strategies to beat the stock market! Use your knowledge wisely to get a high ROI.
