Forex Trading System: An Overview of Technical Analysis
Forex Trading System: An Overview of Technical Analysis
Every Forex Trading System is based on either technical or fundamental analysis or an element of both.
A Directional Trading Strategy is based on technical analysis whilst ensuring an awareness of key fundamental factors that could influence the market. So if our technical analysis is telling us to trade but there is a high volatility news announcement due to break, it would tell you to avoid the trade and the reaction to the news announcement could dramatically override the technical analysis and wipe out the potential trade.
So whilst the fundamental analysis is provided for, the system is based on technical analysis which is an analysis of key factors that indicate whether a trade is available.
This analysis starts with identifying the trend in the market and then looking to identify when that trend will break, once that happens some simple rules are applied to define the entry, exit and stop levels for that trade.
In addition to the trend analysis it also looks at three key indicators which are Moving Averages, Pivot Point and Fibonacci points. The strategy limits the indicators to just these ones so it retains a very simple set of indicators to identify and work with.
Each of these indicators is used to help influence how the trade might move and could therefore affect where the entry or exit points are.
Technical analysis can also take into account any of several hundred other indicators but you have to be careful not to over analyse the market and therefore end up not being able to trade anything.