Why is TA so important for traders?
Technical analysis is one of the most important subjects for any aspiring investor that wishes to become efficient at learning how to trade forex and should be considered a basic requirement for anyone who is serious about becoming a successful trader. It is a tough discipline to master and requires a very specific set of skills and knowledge. However, several aspects of it are not as well known by many people as they should be and are often overlooked or taken for granted.
One of these aspects is that technical analysis is an essential tool that can help you to be able to identify when an opportunity is actually present in the market and take advantage of it, even if the general trend is still unfavourable. For instance, many traders will take the view that after having identified a strong uptrend, they are then free to go ahead with their trading plan, and if they are correct and a good entry point has been found, they will reap a good profit. In fact, this is the view that goes with the concept of entry points, the idea being that once you have identified an upward trend, you can simply follow it until the breakout occurs.
This is the sort of thinking that most beginners have in mind when they begin to learn about technical analysis, which can often result in them making bad decisions when they should have known better. However, it can also lead to a situation where one might have made a good decision in hindsight but not have recognised what was happening in front of them. If you follow this simple example of what happens in the case of entry points and breakout reactions, you can see the importance of looking at your own situation, as well as taking into account what other traders in the market are doing, when you start to develop a deeper understanding of technical analysis. You will find that there will be situations when it is possible to analyse your performance and get help from others, but there are also situations in which it becomes problematic.
In fact, this is the area that requires the most understanding for any trader because it is here that most of the mistakes that most people make in forex trading originate. The main reason why it is so essential to understand what is happening in the markets in order to make better decisions is that the best opportunities are usually the ones that are present for just a few minutes. This means that you need to be able to recognise when they are present.
What you should be looking at with technical analysis
There are two types of entry point, both of which have a similar structure. The first of these is the strong uptrend, when a trend begins, and the second is a potential breakout, when a break occurs in the market, which then has the potential to become an upward trend that is ready to continue. However, other situations can also constitute strong uptrend and breakout reactions, such as bear flags, double tops, or market reversals, which can help you identify when an opportunity has been found. Another aspect of this is the possibility of finding a possible reversal point, when an initial uptrend is followed by a strong downtrend. When you identify an opportunity in the market that can be used as an entry point, it is imperative to identify the precise moment in time when you are going to use it because there can be no mistake about that.
The reason for this is that the market can change direction very quickly after using an entry point and you may well find yourself taking a hit. It is not an easy task to identify the exact moment when the market should use an entry point because of all the factors that influence the price movement, including the overall trend, the specific news, the volume of the market, the level of competition and the psychological state of the market.
How to execute correct decision making
It is important that you identify this specific moment in good time because if you do not, you could easily miss the opportunity to make a quick profit. So how can you identify these moments? If we take, for example, a typical situation in which a new trend appears and a strong breakout reaction occurs, and you buy at one of the entry points. It may be possible to identify a potential breakout point that is close to the one you have identified.
The only thing to do in this situation is to follow the market until the breakout point, and then wait for it to appear again. As soon as you see the break, you can buy, and if the market shows a strong uptrend, you will be able to profit from it. The problem with this type of entry is that there is a high probability of finding a reversal point or a breakout point that is not in the same direction when the market is already moving in a stronger direction.
In conclusion, the main reasons why technical analysis is so important are that it helps to identify when an opportunity is present and the potential of that opportunity to be exploited, as well as enabling the trader to recognise when a market is actually in a strong uptrend or a breakout reaction. Also, it helps to avoid making mistakes and to recognise the most appropriate moment to move ahead in order to exploit the potential of the market.
