Technical analysis is most suited for forex trading. Charting shows us where price has been in the recent and distant past. Technical analysis is like a picture or window that helps us perceive the attitudes of the market participants as reflected in the price behavior of the market.
Certain technical indicators give us clues as to where the price is heading based on the past price action. The basic purpose of technical analysis is to uncover and forecast market movements.
Currency traders use technical analysis to find trends, trend reversal signals, potential price moves, support and resistance and the distance the price can move based on the measuring techniques.
But when should we pull the trigger to enter a trade and how can we improve our odds of making a winning trade. The answer lies in the multiple time frames. Long term time frames do influence the short term time frames.
But which time frame triggers actions first. How do we know which is the dominant time frame to follow. What is the shortest time frame a trader should choose against a longer term time frame?
To find out our window of opportunity we need to know; which time frame is the best to pull the trigger. Which time frame is the best to set your stops? Which time frame is used to best to establish your profit targets?
Knowing what type of a trader you are is critical to your success as a trader. Are you entering a trade for scalping, day trading or swing trading? Will you look to expand your trading opportunity as a position trade to ride a long term trend? You should treat trading as a business.
You need to decide which investment vehicle is the best to capture the risk to reward parameters and in the time frame you expect the market might take to reach those objectives before making any investment. Fail to plan and plan to fail. Every investment needs thorough planning.
If you believe that you can achieve your profit objective with a high ROI with forex futures or forex options or currency ETFs then dont hesitate to use those instruments. It is not necessary that you only trade spot forex market.
Only after that you will be able to determine which time frame to follow and then you can monitor shorter term time frames as well. You may think of yourself as a day trader or a long term trend follower.
As a long term trader you may need to use the short term day trading techniques to cover your trading expenses and make profits to pay your utility bills when the market is in a consolidation phase. Eventually you will encounter market phases that may dictate that you diversify your trading tactics. If you are trading for a living, then always take trading as a business.
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