Technical Analysis - The Best Way to Trade Forex, Really?
Is It Voodoo?Have you ever noticed that when traders/investors are discussing technical analysis, they either come down on the side of it works or no it doesn't. Either you buy it all, or not at all. Is there no third choice? There is. Take what works and leave what doesn't. For example, moving averages are very common in technical analysis. But do you know how many different kinds of moving averages there are now? Ever hear of the moving average of least squares? Or the triangulated moving average? How about the Hamming moving average? Excuse me. Let's stop being ridiculous. There is definitely a point where technical analysis gets to be voodoo.
Where's the Volume
One of the fundamental cornerstones of technical analysis is volume. Guess what? We don't have volume in forex. Volume is how you measure how strong movement is in the market. Without that it's like trying to tie your shoe with one hand.
Yes, It Works
All that said, yes some technical analysis works. For example, MACD divergence with the price often signals a turn around in price. That works. In an uptrend, if the price pulls down and touches a moving average that has been acting as support, often the price will rebound. That works. Take what works. Leave the overly complex nonsense behind.
Perhaps to make technical analysis really dangerous for forex we should go beyond merely staring at a chart. If you add in some fundamental analysis, and some of what the major banks at the major countries are doing and have done, then you have done total analysis.
In other words, what I'm suggesting is that you look at the big picture (the fundamentals) and the little picture (technical analysis). It's not really a new idea. But it is a really good idea.
You see, when you're watching the macro and micro, you'll start to get your finger on the pulse of the market. Then you will be a dangerous trader (that is, to other traders' account balances).
Knee-deep in TA.
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