This post was most recently updated on March 1st, 2018
I’m often asked by new and non-traders why I trade the currencies and Forex market, and not equities and stocks. For me it’s simple. My background is in technology and software applications. Software, programming and working with computers involve a whole lot of analysis, and like the name of this trading methodology, Technical Analysis is all that and more.
There are certainly many technical traders(traders that apply technical analysis to trading) that use the method for stocks, futures and in the options market, but I think Technical Analysis is so vital to understanding the landscape of the Forex market. Currencies fluctuate based on economic and market news, world events etc, however unlike stocks, you don’t have corporations, earnings directly and immediately impacting prices. Besides that, the lower volatility in the stock market vs the forex market also matters a great deal. We know that overall and in general, stocks have an upward bias. Over time, the direction is up, not down. Sure, stocks and companies can go bankrupt and their stock tanks to zero, but the huge disparity between stocks that go up over time vs stocks going down is where the Forex market is different
Mapping Trades with Technical Analysis
Technical analysis provides the trader with a map and a better picture of market direction. I’ll just briefly touch on a method of Technical Analysis I’ve used a few years ago. Below was an actual pattern trade on the Canadian dollar using a Gartley Butterfly Pattern.
Pattern trading is very popular with equities, futures, and forex traders. Patterns often reoccur in charts because they are very reflective of trader sentiment in the markets as well as price action among buyers and sellers. Along with candlestick patterns, patterns like the Gartley Butterfly are the building blocks of Forex technical analysis. As you gain more experience and become more familiar with the trading style you want to adopt, various trading methods can be added to help you determine the trend and overall market direction of whatever it is you decide to trade. There are hundreds of trade patterns and variations, this just happens to be one of the more popular ones with forex traders
Keep in mind that this style of trading(Gartley Butterfly Pattern Forex) can be used in other markets as well, stocks, futures, etc. It’s very versatile and even has money management built into the system because trades with profit target and stop losses are calculated based on the dimensional size pattern of the butterfly. If properly traded and because of the dimensions of the butterfly pattern, the reward to risk ratio should always be positive
I cannot emphasize this enough and I will keep repeating it until you’re sick of reading it. Money management and trade management are always more important when it comes to achieving profit, but good sound, Technical analysis is still part of that. There are no earnings reports in forex, no mergers, and acquisitions like there are with stocks Not knowing technicals, or just ignoring them altogether would not be a wise move if Forex trading is the primary market you want to trade. The technical tools are available to us today, why not take advantage of it right?
There are expert advisors and trading robots that will help you trade Gartley Butterly Patterns in the Forex. I would suggest though that if you’re new to this type of trading to learn to map the patterns out manually. By doing so, you will learn other important technical analysis tools like Fibonacci levels along with candlestick and bar chart patterns.
Good luck with the trading and thanks for visiting. Be sure to read on. There’s a lot of information that should help you in learning to trade the Forex. Share this post and link so you don’t miss any future updates.