Trading With The Use Of Technical Analysis Figures

It’s terrible to confess, but humans see
only what they want to see, and
they hear what they want to hear.

Anna Akhmatova

In this article, we’ll have a look at trading strategies based on technical analysis figures. It’s very important to understand the following thing – in trading one doesn’t exclude the other. In international financial markets that don’t have well-defined laws (for example, there might be a dozen different concepts of the basic definition of a trend) everything that works should be used.

Your trading system is your weapon in the wild forest of the market. It brings you profit. As hunters use both traps, rifles and bullets of different calibers, so you, as a trader, are bound to constantly think, observe, explore, combine working variants of various trading strategies. If you manage to catch the trend, that’s wonderful, just follow it for days, weeks, months. If you’ve earned on a powerful rebound, it’s good too. If you’ve found yourself on the right side of the market by the time breaking news shows up, it’s great. No one restricts you, you’re free in your choice.

 

Interesting facts about the figures of technical analysis

George Soros (Wikipedia), in particular, worked with trading positions in billions of dollars, and he often used his back pain as an indicator. He was used to exit the market each time the pain shot up the back, while he kept holding his positions as long as he was in a good condition.  His companion-in-arms, and subsequently an independent successful investor – Victor Niderhoffer (get familiar with his excellent book «Universities of the Exchange Speculator») also paid attention to the signals of his own body (in this case it was his stomach pain) when buying shares or currencies for hundreds of millions of dollars. Moreover, he also considered the opinion of a familiar tramp hanging around in different countries. The most fantastic thing is that everything mentioned above really worked, despite it sounds weird.

 

The emergence of technical analysis

Another legendary trader with 50 years of experience and phenomenal results (at the 1987 championship he demonstrated 11,000% per annum) – Larry Williams (Wikipedia) – recalled that in the early 80s, the followers of technical analysis weren’t taken seriously by serious companies and investors. They were perceived as strange folks, constantly talking about «heads and shoulders», «saucers», «flags» as well as other incomprehensibilities. They usually evoked a smile and even a suspicion of fraud. So, since the foundation of the New York Stock Exchange in 1792, almost 200 years, investors and traders used only fundamental analysis.

Although brilliant traders, such as Jesse Lauriston Livermore (Wikipedia) already at the beginning of the 20th century started using some elements of what would be currently regarded as technical analysis. In memories of Livermore, the so-called «lines of force», «anchor points» as well as a number of other elements that he had learned to see on the trading charts are considered. It enabled him to earn millions.

 

Parallels with astrology

People in ancient times liked to talk about the influence of constellations on human life. Since then people are still prone to think like this. Every day we hear about Pisces who are supposed to have an unexpected meeting or Scorpios, who should be especially careful when signing important documents.

If you ponder over it a bit, it becomes clear that all these constellations don’t exist, in fact. There aren’t any Aquariuses and Sagittariuses in the starry sky. There are simply stars, located at a great distance from each other, and only our human imagination joins them in lines and figures. Figures of technical analysis also exist only in our imagination. All these «heads and shoulders», «double tops», «triple bottoms», «saucers» and many others, the search for which is what many traders around the world are busy with, are nothing more than a figment of imagination.

Check yourself – take any chart (open a live chart), not related to market quotes: a graph of the change in air temperature during the year, a graph of voltage fluctuations in the electrical network and anything else. If the graph is detailed enough, and you’re quite attentive and familiar with at least the main figures of technical analysis, you will easily find a lot of «heads with shoulders» and other «saucers».

However, market charts would suffice too. Switching timeframes from M1 to MN, you can easily find dozens of cases when all these discovered «pennants», «flags», «diamonds» predicted nothing.

 

Is it possible to benefit from the figures of technical analysis in Forex trading?

Despite we’ve just told above, you can still use technical analysis. Just do it in the right way. If you managed to identify any figure, be prepared for a powerful price movement. It’s because other market participants also see it and open their trading positions as they were taught to do, for example, in anticipation of a trend reversal. By the way, the market can move in any direction and not necessarily in the direction expected by you.

On this chart we see the pattern of the trend reversal «A head and shoulders». We naturally expect a powerful price movement and it takes place – the price drastically goes down.

Trading with the use of technical analysis figures

 

How to trade using technical analysis figures

Buying the CALL option

To purchase the CALL option using a trading strategy based on technical analysis figures you should:

  1. Study the extended charts on different timeframes, from M5 (five-minute) to MN (monthly), selecting an option (for example, a currency pair).
  2. Recognize a long-term bullish trend.
  3. If at the final stroke of the figure the price goes up powerfully, buy the CALL option.

Trading with the use of technical analysis figures. Buying the CALL option

Buying the PUT option

To purchase a PTA option on a trading strategy using figures, you need:

  1. Study the extended charts on different timeframes, from M5 (five-minute) to MN (monthly), selecting an option (for example, a currency pair).
  2. Recognize a long-term bearish trend.
  3. If at the final stroke of the figure the price goes down powerfully, buy the PUT option.

Trading with the use of technical analysis figures. Buying the PUT option

Tips for trading using technical analysis figures:

  • Remember that these figures don’t exist in reality. Therefore, they don’t owe you anything.
  • Do not consider yourself smarter than others. The «head with shoulders» you see on the chart is also seen by several million traders and analysts. That’s a feature of group thinking – the crowd thinks surprisingly the same.
  • Trading is a professional work with probabilities. The appearance of figures on the chart strengthens the probability of a powerful price movement – this is exactly what you need, as traders earn on volatility.
  • Don’t try to see any nonexistent on the market. No one understates the power of your imagination, but it can hardly help you to earn.

 

The strategy of using figures from the broker Finmax

To purchase the CALL option in the trading terminal of the Finmax broker, take the following steps on the finmaxbo.com website by preparing the option, specifying:

  • Assets: EUR/USD
  • Expiration: 25 minutes
  • Bid: $50
  • Forecast of the price direction: UP
  • Click on the «Buy» button and watch the market.

The strategy of using figures from the broker Finmax. Buying the CALL option

To purchase the PUT option in the trading terminal of the Finmax broker, you should take the following steps on the finmaxbo.com website by preparing the option, specifying:

  • Asset: GBP/USD
  • Expiration: 10 minutes
  • Bid: $50
  • Forecast of the price direction: DOWN
  • Click on the «Buy» button and watch the market.

The strategy of using figures from the broker Finmax. Buying the PUT option

 

Risk management

Before you enter the market you need to know how much you will earn on every tick (a minimum price movement). If the price goes to … ticks in your predicted direction – how much will you earn? If the price goes to … ticks against your forecast – how much will you lose? Don’t trust your memory and intuition – they let us down countless times. You’d better get used to make short calculations and records. You do not need advanced math mathematics, just arithmetic would suffice (the level of primary classes), but it will really help you in your trading.


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