Tuesday 22 January 2008

More kinds of technical analysis in Forex trading

Looking at charts isn't the only kind of Technical Analysis. There are some more abstract and advanced kinds, based on wave theory and number theory, for instance.

Wave theory was developed in the 1920s by a man called Ralph Elliott as a way of predicting trends in the stock market. It's really based on physics and on the law that every action is followed by a reaction. This can apply to the market and you often see it happen in the stock market: i.e. when prices drop, people will buy, increasing demand so prices rise. Then people sell, demand drops and prices fall again, and so on. The trick is to determine when these actions cause reactions that make your trades profitable.

The Elliott Wave Theory is that market activity can be predicted as a series of five waves that move in one direction (the trend) followed by three waves in the opposite direction - the 5-3 move is one cycle.

Using the theory is very much a matter of interpretation, as the timing of each series of waves varies so much. If you can see and follow the pattern of larger and smaller trades, you can identify the best times to enter a trade and to get out of a trade.

Whether this appeals to you or not depends on whether you enjoy patterns and numbers. If it leaves you cold, you might be better sticking to more concrete methods such as charts, at least until you are more experienced! But many who HAVE used it have found it a really amazing way of predicting trends, and thus of making a profit.

Don't forget, if you are keen to get into Forex trading, Easy-Forex is probably your best "way in" because of the incredible amount of live support and training they offer you - so you can start training for real from Day 1. And remember there's always more help at http://www.bizwrite.co.uk/Forex/forexindex.html

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