Why My Focus is on Forex Technical Analysis

Today was a great day to begin the week. My trades were taken on chart patterns, not on news.

It always amazes me that no matter how many times you may observe the new traders who focus on news, you typically gain an insight as to why many of them lose. One thing I have observed, is that they are typically concerned with news. They would like to know the latest news release and the news tidbits that follow. They pay less attention to the charts and think to themselves that the news must be right. I ask them why must the news determine the direction of the markets? Its not the news in my opinion, its how the markets interpret the news. Regardless of what I say, or how many times I say it, it never fails. Most of those traders who begin and focus on news typically lose and leave the industry within the first 3-6 months. So what should we do? Should we listen to news? Should we ignore the news?

To find the answer to these questions, we must first observe how the news behaves in the past when currency specific favorable news has been announced, and when unfavorable news has been announced.

Its prudent to ask yourself has the U.S. dollar moved up on positive news? Has the U.S. dollar moved down on negative news? These simple questions will give you an idea of what we consider 'relative strength and relative weakness'. This basically means if the U.S.D. moves higher on what should be perceived as dollar negative news,  then the U.S.D. is 'relatively strong', conversely if the U.S.D. is moving lower on what is perceived to be dollar positive  news then we are experiencing 'relative weakness'. A good example of this was in January 2016. We had dollar positive news and yet we had dollar weakness, this was a good indication of a DX move lower.

Common Problem of News Traders:

1.) They have predetermined goals: For example, many say "If NFP numbers come out above 150k then I will go long the USD, if the NFP numbers come our below 100k then I will go short the USD". I hear this type of talk all the time, and most of the time these traders lose or break even. Why? The market does not move on predefined news goals. You will learn this after trading as long as I have in the markets. This refers back to my original title "Why My Focus is on Technical Anlysis". The news lies more than technical analysis does.

2.) Trading Major News with little or no experience:

We have all been there. We are new to trading we place a trade, then we see a 200 pips spike in the opposite direction that we intended, we have no idea what happened. Then we find out we were trading during a major news announcement. This is something you should never do, unless you are experienced enough to do so.

When News Matters, News Matters: News that means something will have a sure impact on markets. News of war, news of NFP, FOMC, ECB, or any Central Bank. These news announcements should not be taken lightly and if you are new to day trading is very simple! Stay AWAY!

3.) News Feed Not Accurate to the second:

Many traders will trade with news feed that have a time delay, these are typically dangerous because the first move in news trading is typically traded by those who are best prepared. Many computers will trade with amazing accuracy and be out within seconds.

A Focus on Technical Analysis

Technical analysis I find is the best way to trade Forex. There are many different ways to benefit from using this amazing tool, and many different tools to use. Some may use less indicators, some many use more, some may not even use technical indicators when trading. So what indicators should we use? Well this is a good question for another article, however to sum this question up, its best to point out that some indicators perform best in certain markets and knowing when to use which one is probably one of the most important techniques in day trading with technical analysis.

Above is a good example of a common technical analysis tool. It is purely subjective and shows moving average channels to use when trend trading.

We must understand that many trading computers who trade for Wall Street are based on technical analysis, so then shouldn't we trade in the same manner? For example Goldman and Sachs spent 500 million on a reliable computer trading system that uses technical analysis. If its good for Goldman I think it is worth a try for us to try and figure out why.

In close I recommend reading on technical analysis to learn the most effective ways to day trade with this method. I must mention that there are many great traders some use fundamental and some use technical, however all have one thing in common...cut the losers and ride the winners.

All the best in day trading!