Technical analysis is basically just an examination of the past. There are two major items that can be gleaned from this examination, and they pertain to trends and support and resistance. This can allow a trader to see if there has been a trend in place and, if so, they can look for that trend to continue. This can allow for a bias of sorts, so that traders can approach a bullish market with rising prices with the goal of buying, anticipating that this trend might continue.
Remember, the past does not predict the future, and technical analysis should not be considered a predictive tool. More important than finding trends that might continue is finding prices that might open the door for opportunity.
This is where support and resistance come into play, and can lead to potential strategy for traders. To get acquainted with support and resistance, the article below will get you started.
A Guide to Support and Resistance Trading
After developing a basic understanding of support and resistance, we can start to sync that information with the premise of supply and demand. This is important because supply and/or demand is what will help to impact future price movements.
The Forces of Supply and Demand
After you understand basic support and resistance and know how to sync it with concepts of supply and demand, the next step is to combine these concepts in your trading strategy. We discuss how to do so in The Forex Trader’s Guide to Supply and Demand trading.
Supply and Demand Trading:A Forex Trader’s Guide
Last but not least, let’s get started on real-world applications by focusing on one of the older support and resistance styles:Pivot points.
Pivot Point Strategies for Forex Traders
To put this knowledge to use add the pivot point indicator to the charts on your demo platform, using the daily time frame for the pivots. And then as we discussed in our previous lesson on Multiple Time Frame Analysis, you can then go down to the four-hour chart in the effort of finding possible trade setups.
Look for prices testing s1, s2 or s3 levels in order to input buy orders (again, on the demo because these may not work out and there’s no point in losing money simply to test something). Alternatively, look for prices testing r1, r2, or r3 levels in order to input sell orders.
The goal here is to see the way that prices may work with support or resistance when it comes into play. Check positions within 24 hours, while looking to employ even more positions to further test how pivot points can be used to set up trade entries.
