First the correct principles and role of Technical Analysis in regards to trading is explained. Next all the different types and tools of Technical Analysis are outlined. Advice is given on the proper approach to Technical Analysis when trading.
Technical Analysis Tutorial – Learn To Trade Forex with cTrader
Hello guys, today we’re going to talk about Technical Analysis again, we already did a video about Technical Analysis which was an introductory video explain what Technical Analysis is. This video however is going to go into lot deeper conceptions, its going; we’re going to talk about things that usually take some years for novice traders to understand.
In this video we’re going to talk about the exact role of Technical Analysis in your trading and we’re going to give you some basic principles to follow when doing Technical Analysis so that you should use it in a proper way. Let me start by saying that cTrader is a No Dealing Desk STP Platform, here at cTrader we get compensated from your commissions that means that we actually want you to grow your accounts because the more your accounts grow the more you trade and the more money we can make. That’s the reason that we’re making those educational videos to actually to help you guys and the reason that I’m mentioning this now in the Technical Analysis video is that some of the things that I’m going to say are, may be controversial and it’s not exactly what you will read in most technical analysis books and what you will see in most websites that are trying to sell you something related to Technical Analysis.
Let me start by telling you first that Technical Analysis does not predict the future in a certain way. I’m going to explain to you now why Technical Analysis cannot predict the future and why the Forex market is generally unpredictable. The Forex market is the largest market in the world, it has a daily volume of about four trillion (4,000,000,000,000) USD being traded and that much volume is completely uncontrollable, there is no way for anyone to know what’s going to happen next half an hour (1/2), next five (5) minutes. You also need to consider that there’s not only speculators who are trading, not everybody’s trading to actually making money; there are also companies that are trading for commercial reasons, people exchanging money and they’re people hedging their risk so they actual go sometimes on the opposite side.
Another reason is that in the Forex market like any other market where Technical Analysis is performed many time frames coexist at the same time that means that you may do your perfect Technical Analysis for your trading frequency in your like five (5) minute time frame or something like that but at the same time with you there are other millions of traders who might be trading, others might be trading high-frequency, others might be trading on their one or two (1 or 2) minutes charts others will be trading on the one (1) hour charts, others will be on the daily charts. All these charts provide different signals at the same time that a trade is long at the daily chart its short on their high frequency tick chart and it’s again long maybe on the five (5) minute chart and short on the ten (10) minutes chart. All these orders are going to the banks at the same time and even the trading servers at the same time so there is no distinction between time frames when the orders are sent so the conclusion is that the even if you do the perfect technical analysis for your own trading frequency and time frame that does not guarantee that everybody else will be thinking exactly the same thing as you because they’re looking at completely different data.
Also if you think about it, if there was such a thing as the perfect Technical Analysis and the perfect rating system that protects everything, you would not see any market analysts doing Technical Analysis everybody would be trading that trading system by now only, one robot would be sold in the market and everybody will be using that robot and there would be actually no one losing everybody would be winning which is impossible.
So I just said that Technical Analysis cannot predict the future so that means that Technical Analysis is useless, right? Well wrong, Technical Analysis is that one of the most useful tools you have in trading and the reason is that in order to make money in trading you do not have to predict the future, training is not about that. Technical Analysis is about understanding what’s happening now in the market, Technical Analysis helps you understand and quantify the relation of the current price to the previous movement and it also shows you what the investors are doing at the exact moment that you’re trading. This is enough for you to make money because trading is about understanding the current view of the market, identifying high probability set-ups, that’s the difference high probability, not predicting and using proper Risk Management, risk to reward ratios, a correct trading system and having the correct psychology.
By using Technical Analysis with combination with the aforementioned tools like your Trading System, Trading Psychology and your Risk Management what you manage to do is manage your losses when you’re losing so that they are small and when you win you win a lot more or maybe you’re losing and winning at the same amounts but you winning more than you’re losing. This is what trading is all about so that’s the role in technical analysis in trading it helps you identify proper set-ups, proper high probability scenarios and good entry and good exit. That’s the main reason why we did videos about Risk Management, Trading Psychology and Trading System before this video because traders are usually concentrated on Technical Analysis and we wanted you to be in the correct mindset about trading before you actually start using Technical Analysis.
Now I am going to give you some basic principles that you need to follow when performing Technical Analysis that are going to help you to get the most out of it. Let’s go to cTrader, here we see the chart of an expert Technical Analyst or is it so? Technical Analysis that is this complicated is not going to get you anywhere, you should know that all Technical Analysis and Technical Analysts and all traders get through this stage when they try to find the super system that predicts the future, guys this doesn’t exist. This chart here and the Technical Analysis that I’ve drawn here does not tell you more about a correct set up or the price action compared to this chart which is very simple but that doesn’t mean that it’s, it will give you a wrong conclusion. So if your Technical Analysis you see that it looks kind of like this, you have way more indicators, way more tools that are very hard to understand, you get confused all the time and maybe you should reconsider and try to do things simpler. A trading signal and a good setup is not about the complexity of your analysis.
That brings us to the second point when doing Technical Analysis. Technical Analysis is all about the price, price is the key, if you’ll have a the kind of Technical Analysis that takes your mind off the price then you’re doing something wrong, all these indicators are drawn from the actual price so it’s not like this indicator is going to be the magical formula that looks at the price and understands something different. What you will read in many books, even in maybe forums is that you’re supposed to be using a lot of indicators and these indicators are supposed to be confirming each other when you have a trading signal so I’m using this commodity channel index that will confirm my price rock so I will enter with an oscillator. Guys try to search for your confirmations in the price, you don’t need an indicator confirming another indicator, you can, you can find your confirmation if you look at the candlesticks.
That brings us on the third point, you don’t have to use more than one indicator for the same thing, if you’re using five (5) oscillators I don’t know what’s the reason that you’re doing that but if you actually take the time to play with the indicator settings you can see that you can make all five (5) of them give you the same exact signals. You can use a indicator to show you something specific like you can use in oscillator to see, to get some signals for a range market. You can use some one or two (1 or 2) trend indicators to get signals for a trending market but having a lot of indicators of the same type same type this is not going to get you anywhere. In Technical Analysis there are the many tools that do the same thing, it’s not like there is one way to do something, it’s not like we can trade retracements only with the Fibonacci retracement or we can trade trends using only a moving average, you don’t have to use all the tools, you can use one of the tools that fits your trading system and the that way you’re going to be more successful.
That brings us to the next point, you should be, you should try to play with the parameters of the indicators that you’re using, don’t read in a book that the indicator has a default setting of this and I just use whatever the default setting is or the recommended setting is, by playing around with the indicator and see in your trading system, you will see that there is, it’s very often that a other parameters, other defaults are better for exactly what you want to do. Next important principle is that you need to use Technical Analysis in proper context, what means is that first try to identify the general high-level move of the market. What do I mean by that? Just saying that you found a double top pattern in the chart when it’s not in the end of the trend that double top is not going to be a reversal, same thing you, if you see a hammer candlestick that is in a low volatility market this should not be any type of strong reversal or something like that. So try to concentrate on the context first that’s very very important especially for Japanese candlesticks and price action, you cannot just try to find random price patterns in the movement and trading them.
Lastly, like we explained on previous videos don’t look at more symbols than you can handle, don’t look at more time frames than you can handle, don’t look at more screens than you can handle, don’t look at more technical information than you can handle, this all is just taking your focus away from the other important aspects of trading, your trading system; your Risk Management, your Trading Psychology, so try to keep it simple with Technical Analysis, simple is not bad. So this was the theory that is supposed to get you in the correct mindset from using Technical Analysis tools, now we’re going to go to cTrader and I’m going to show you all the types of tools that we will be using when doing Technical Analysis and from there you understand what type of videos we’re going to do in the future when we show every tool.
So let’s go to cTrader, let’s close this chart so first and important: most important type of Technical Analysis is the price action and Japanese candlesticks, so Technical Analysts look at the candlesticks, they look at specific patterns, candlesticks show how the price is moving so you understand how investors are thinking. For example this is an easy candlestick to explain, you see that it opened here then the market drove forward and it drove upwards so everybody was long but before the hour passed everybody was short again and it spiked down again. That shows you that the market tried to go up but it clearly failed because everybody then went short, so this is a type of candlestick analysis.
Next thing that I want to talk about is chart types, usually we use Japanese candlesticks but we also have time frames which are very important I already explained, I can explain again. Each time frame represents the amount of time that you see in each of these trend bars so you can use the appropriate time frame depending on the trading frequency you want. Another very important chart type we in cTrader features is tick charts, if I select tick charts every trend bar has a specific number of ticks, not, it doesn’t represent time anymore. So this is about chart types and price action. Next thing is support resistance, lines and trendlines, these are very important tools and there are very successful traders that only use these tools and the main, the main, the good thing about these tools is that they do not lag at all, indicators usually lag trendlines don’t lag. So trend lines are there to identify trends with horizontal lines you draw support and resistance levels, you can sometimes draw a channel and that’s all you need about support and resistance trading it’s another type of Technical Analysis.
Then we have the Fibonacci tools, most common tool is the Fibonacci retracement which is used to, for you to identify retracements in a trend. There is also the Fibonacci expansion tool. Fibonacci expansion has to do with Elliot Wave Theory which we’ll explain in the, in another video, its tries to find the next movement, the next leg of the the Elliot Wave. There are also other Fibonacci tools which are less famous. We have Andrew’s Pitchfork which is about median lines; we’re going to talk about Andrew’s Pitchfork next.
Here we have some shapes, the best way to use shapes in cTrader, what is very, very useful for me specifically is I make this we say black and I fill this area and I kill the opacity so I make it completely black. What I can do this way is I can practice on the weekends in a very very cool way because now I don’t see what the price is doing, I can be doing my Technical Analysis normally without looking at the price and I do everything, I open my trades and then I move the square and I see how the price is moving so this is the best way to practice. If you’re practicing like this you’re not doing it properly because you already seeing what’s going to happen next.
Next tools that I want to talk about are indicators, we have trend indicators, trend indicators are there to help you identify trends and trade trends, we already talked about trends in a previous video. Oscillators are there to help you identify markets that are not trending and give you trading signals. Volatility indicators help you understand the market volatility, volatility is important in every type of market movement. Volume indicators are there to show you things about tick volume, tick volume is a, can be an important tool to confirm your price action, the bigger the volume the most possible a breakout for example. cTrader also features custom indicators and we have done something great, the indicators are located in our cTrader Developer’s Network, you can visit by clicking www.ctdn.com, but if you search for an indicator here, Bollinger bands for example you will see that we automatically search in cTDN and you can find this indicator, it will automatically go to cTDN where you can download the indicator, here it is, you can download it and install it in cTrader so that’s pretty cool.
Another tool is price patterns for example we see here, what are price patterns? We see here head and shoulders. Let me just explain quickly this pattern, so you will understand what the point is. The point is that the market is trying to go up, it then goes down, it tries for one last time, it goes higher so it’s still successful but then it tries one last time and it completely fails. Then goes it goes below the previous high, that’s a typical reversal especially if it’s after a trend so usually there is a point of resistance here after it’s broken like in this case where the price is supposed to go exactly the same pips below as it went above which is exactly here, it’s 10 pips and it went 11 pips, so this kind of chart patterns.
Lastly they’re technical analysis tools which are actually tool less, without a tool, selecting your symbol based on its volatility is done without tools but it’s also Technical Analysis, selecting the time that you want to trade because at some points in sometimes there’s higher volatility, sometimes there is lower volatility at some specific trading hours this is also Technical Analysis and okay trading sessions is about fundamental analysis.
In this video we talked about Technical Analysis, we, I explained how you should use Technical Analysis and its role in trading. I also showed you the most typical tools, I think I showed you everything about, all the tools about Technical Analysis, actually maybe I forgot something. In the next of the videos we’re going to be concentrating on each of these specific tools that I showed you and we’re going to be categorizing and showing each tool, how it’s supposed to be used on trends, how it’s supposed to be used on range, on breakouts. So if you like this video make sure that you subscribe and if you want you can share it with your friends. Thanks for watching.
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