Pros And Cons Of Technical Analysis In Forex

Technical analysis has been a part of financial practice for many decades. It is a method of predicting price movements and future market trends by using charts. It is necessary for you to know the pros and cons of technical analysis so that you can trade with complete ease.

The article below on the pros and cons of technical analysis in forex will help you gain more information on technical analysis. There is no doubt that technical analysis is the easiest and most precise method of currency trading. So, let’s find out some of the advantages of technical analysis in forex.

a) Technical analysis only focuses on charts and tools and takes no account of feelings or any other less precise factors.

b) With technical analysis, it must be pointed out that trading rules are picking up patterns in the data not accounted for by standard statistical models and that the excess returns thus generated are not simply a risk premium.

c) With technical analysis your prime concern will be the actual price to decide what the action of a currency pair might be. You will only concern with what the market is doing, not with what it might do.

d) One of the great advantages of technical analysis is that it can assist you in the basics of currency trading. It will also help you to decide how and when to enter the market, how many lots to trade at any one time, how much money to risk on each trade, etc.

e) Technical indicators can sometimes point to the end of a trend before it shows up in the market. This will help you hold on to your profit and minimize your losses.

There are merits and demerits of technical analysis, the above article will make you clear about the merits of technical analysis. But it is also important for you know the demerits of technical analysis. So, let’s check out the demerits of technical analysis:

a) It can be dangerous to depend totally on the assumption that today's prices predict future prices. They often do, but not necessarily.

b) Relying on charts completely will not help you to pick up the signals about the changing of a trend until the change has actually taken place. This means you could miss up to one-third of the fluctuations in currency trading.

c) It is also possible in currency trading to act on a pattern prematurely or in a bit of a panic. If a large number of currency traders do this, it can create a self-fulfilling prophecy.

Go through the above article on advantages and disadvantages of technical analysis to get more familiar with technical analysis while trading.