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Technical Analysis Does it work ?
almost none of them can answer the question – Why technical analysis works so
well?
some magical trend lines to hold the price? Ok, first things first.
without speculative traders involved? Sure, it can. In this case, the currency
pair quotes would depend only on fundamental factors, such as trade balance and
difference in interest rates. Eur/Usd would rise if European companies would
export more to the United States or it would rise if interest rates in Europe
would be higher than in the US. Of course, there are other factors as well,
such as risk appetite and so on. However, all these factors has nothing to do
with technical analysis. If the situation would be in Euro’s favour then Euro
would rise..
traders all around the world are looking at this market and wonder when to open
their trades. What trading options do they have? Surely, they would try to
trade the market as written in trading books or websites and eventually they
find out that there are a set of trading tools which are popular among other
trades. Thereby, they try to repeat these strategies and begin to open buy
positions when market hits the support trend lines and sell positions when
price hits resistance trend lines. A cumulative effect happens and prices
bounce.
asset. The prices across the markets fluctuate when important economic news
hits the wires. This can’t be a coincidence and it means that there is always
an army of traders who listen to news and act upon it. However, even without
them, the markets could easily operate.
would be closed there is always stock and bonds markets which highly depend on
the Forex market. Institutional investors either way would have to buy stocks
or bonds and thus they would have to exchange currencies. Thereby, if they wouldn’t be interested in speculative trading, we would see much more chaotic
charts of the currency pairs. However, we have access to the Forex market so we
also can make our impact on it.
That is why technical trading works. It works much better when there is an army of traders watching one particular currency pair like Eur/Usd. It also means that technical analysis works differently on less popular pairs like Eur/Aud for example. All this leads to a simple fact.
Successful traders use the same tools as others who trades the same way as they are and has the most money as well. Of course, one trader with a million in a trade can make a much bigger impact on the market than 100 traders with 100 dollars each. However, rich and poor traders alike use pretty similar techniques. That’s why traders should not much worry about their trading methods. Simple strategies work well for every trader. However, successful and not so successful traders use pretty similar techniques overall.
That’s why traders should not much worry about their trading methods. Simple strategies work well for everyone. There is one defining factor and it is” DISCIPLINE” which set a successful trader apart from an unsuccessful one.
