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[T108]Technical Analysis Moving Average

by Jason Ng, Jas

The biggest and most critical danger of technical analysis is that, after a while, it starts to show you exactly what YOU WANT to see!

In quantitative studies, there is a phenomenon where your research starts showing you what you want to see instead of what is really happening and that is known as ?Data Mining?. Data Mining occurs most frequently when there is a huge benefit to you if the results are showing one way instead of another. This is the exact same phenomenon in technical analysis.

In technical analysis, charts start showing you what you want to see especially when you have made a mistake and needs the stock to go one way instead of another! Suddenly, the deeper you dig into the myriad of technical indicators, the more ?evidence? you seem to find supporting your mistake, giving you the eerie confidence that your mistake is going to turn out just fine.

We all remember how that turned out, don't we?

Technical analysis is essentially a study of the various ways to interpret historical price and volume action in order to form an opinion of future direction. Because technical analysis methods have become so complex over the years with literally THOUSANDS of technical indicators that have been developed, the average amateur investor can always find ways to make a chart look the way they want it to and point towards a non-existent future direction!

Before anyone here thinks that I am against technical analysis, I am not. In fact, my main trading system, the Star Trading System is a technical analysis based option trading system that has made me money over and over again, year after year. So, what really is the problem? The problem is the misuse of technical analysis and the misuse of incompatible technical indicators! Until you really understand the formula and logic behind every technical indicator, the purpose for which each indicator has been developed for and what other confirming indicators works with each other, you will never be able to use technical analysis to form an educated opinion! You will continue to see only whatever you want to see. Some call it ?Analysis Paralysis?, I call it pure ignorance.

Sadly, it takes years of research and heaps of lost money to get technical analysis right and it will only become harder and harder to get right with ever more complex and new indicators being developed everyday. A lack of knowledge and lack of time to attain that knowledge has always been the bane of all amateur traders. That is why following a developed and proven trading system with a proven, proprietary mix of indicators is the best thing an amateur trader can do.

So, the next time you look at a technical analysis chart, remember, are you merely looking to prove what you already have in mind? Because if you are, then you are very likely to find all the evidences you need to support your own views.

There are two types of analysis you need to know about when it comes to Forex trading. Fundamental analysis is "big picture" analysis, whereby you take into account a country's social, economic and political health to determine the stability of its currency. A country that is stable in these areas is going to have a stronger currency, in general than a country that is not stable in these areas, and therefore a stronger country is going to be a better bet when it comes to Forex trading.

What is technical analysis?

Technical analysis is a little bit different. With technical analysis, you analyze a particular currency's patterns and trends over a specific period of time. For example, if a particular currency has been performing strongly in its recent history, it's probably going to continue to do so. Similarly, if it's been doing poorly in its recent history, it's probably going to continue to do that too. You chart currencies' trends and patterns, and make predictions as to how a particular currency is going to continue to do against another. You place trades with "currency pairs" based on this information, in essence betting that one currency is going to do better than another and therefore "winning" on that trade.

Does Forex technical analysis really work?

Absolutely, Forex technical analysis works to produce winning trades; many successful traders encourage taking a twofold approach by using both fundamental and technical analysis to determine which trades are going to produce profits.

Becoming an experienced Forex technical trader

To become an experienced Forex technical trader, you should learn your way around the Forex market by using a "demo" account first. Most good Forex brokers will allow you to open a demo account with no money; then, you "trade" in "demo" mode until you've become very experienced in placing trades. Once you begin to win on trades with this type of "pretend" trading, you can begin to place real trades with real money so that you can make a profit. It's very important, though, that you do demo trading first. This gives you the opportunity to learn your way around the market just as you would if you were really trading, and it teaches you how to handle both wins and losses on trades.

What being an experienced Forex technical trader can do for you

As an experienced Forex technical trader, you have the opportunity to make trades based upon the patterns and trends you see (as well based upon your own gut reaction, once you become experienced), instead of on an emotional basis. Why is this important? Because if you make trades based upon an emotional basis instead of on what your data tells you, you're going to lose on trades, and you may even lose your shirt. That's a simple fact.

Trading based upon what your charts and data tell you, on the other hand, is simply smart. That means that you make decisions based upon data, not upon emotions. In practical terms, that means you may get out of a trade that's still winning because your data tells you it's time, or your data may tell you to get out of a trade that you're losing on, even though your emotions would tell you to stay "in the trade" in the hopes that you could make back the money you have already lost.

Successful Forex traders know that they are always going to lose on some of their trades, but they follow their data, their charts and analyses, and they do what this information tells them. This helps them be successful because they win on more trades than they lose on – and that helps them break a profit and be successful overall. Learning Forex technical analysis can help you do the same.

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Both Jason Ng & Gunther Schwabe are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Jason Ng has sinced written about articles on various topics from Finances, Investments and Trading Strategy. Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management ( ) and author of. Jason Ng's top article generates over 301000 views. to your Favourites.

Gunther Schwabe has sinced written about articles on various topics from Anger Control, Computers and The Internet. For more information on visit our website at. Gunther Schwabe's top article generates over 1000 views. to your Favourites.