Daily Archives: September 9, 2009

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It is known that the majority of traders in the Forex market are using technical analysis as their only trading technique.  Perhaps it’s too difficult to track the GDP, interest rates and unemployment of every country.  But it's very easy to simply follow rules – “if the MACD is above 0 and the SMA of 50 crosses the SMA of 23 then buy” – even a caveman can do that.

The problem is that most Forex traders don’t even spend the necessary time to learn the meaning of these technical indicators, what mathematical basis they rely on, what is the meaning of the parameters in them and who the heck this Fibonacci guy was. (That's him on the right) As in the example above SMA and MACD are very closely related and they are both rely on a crossover of Moving Averages.

As a result of this Forex traders don’t develop themselves as traders they merely replicate a “system” and might I add “A bullet proof system that works in every market condition” and are extremely surprised when their precious system is not predicting the market as they had hoped.

There is also an inherent problem in Technical Analysis, namely that it relies on a single source of information, historical prices.  Since  many technical indicators rely on similar mathematical bases, they often generate the same prediction of the Forex market.  And this makes traders even more excited because as they say, “all my indicators are pointing in the same direction.”

The biggest problem in technical analysis is not the actual analysis but the way Forex traders implement it.

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.