Most traders lose money investing in forex trading because they strive to simplify trading with complicated formulae. Most of these traders are beginners who think that using a complex analytical strategy is the gateway to curb losses.
This complexity leads to more losses since the trader soon realizes that there is much to learn. And trying to keep updated on the wide market leaves them drowning in abundance, confused, and losing more.
If you have made losses trying to grasp complicated concepts, worry no more. The remedy is simple.
The first thing you should learn is why you need to simplify your forex trading analysis. Next, you should find out how you to earn quickly with less effort.
Lastly, it would be best if you got more options to win from forex trading. What’s more? Read here to find out.
Why You Need to Simplify Forex Trading
Complexity is the route to being overwhelmed. You find yourself ignoring other crucial parts of currency trading that are equally important to help you uplift your profit margins. This is because many factors influence the trend of the forex currency pair.
For example, assume the price of GBP/USD is 1.36775. The price can change the next hour due to political, economic, and social factors.
Since the three factors averagely lead to price direction, controlling the market entails three analyses to help you make sound decisions. These are technical, sentimental, and fundamental analyses.
Fundamental analysis entails understanding why the volume and price of commodities change. It involves diving into economic, political, and social changes and their effect on price direction.
Sentimental analysis entails listening to where other (most experienced) investors project the forex trend to follow. Sentimental analysis drives emotions in trading.
The more you focus on fellow investors’ opinions, the higher the probability of ignoring other types of analyses. In the end, you find yourself noise trading—make decisions based on opinions. The remedy to noise trading is technical analysis.
Take a Deep Dive into Technical Analysis
Technical analysis involves understanding when forex currency pair prices are likely to change. Price fall and rise determine the trend on a chart.
Technical indicators can guide you while determining when to sell or buy a currency. Technical indicators are signals that show the pattern of currency pairs. The four most typical technical indicators are
Moving average is a calculation that analyzes data points by creating a series of averages. It subdivides into Simple Moving Average (SMA) and Exponential Moving Average (EMA). While both echo the price changes over a period, EMA gives a better picture of the current price data.
Calculating the moving average is easy. For example, to find the SMA of a currency pair for 20 days, note down daily high, low, close, or open prices. Next, sum the daily prices and divide by 20.
Another technical indicator is MACD, short for moving average convergence divergence. It determines uptrend and downtrend by measuring the difference between two moving averages. The moving averages are exponentially smoothed.
Relative Strength Index (RSI) shows the strength or weakness of a currency pair in the past and currently depending on the recent closing prices. It guides you in finding when a currency was overbought or oversold. RSI suits you if you like buying when forex currency pairs are extremely low and sell when the prices hit their peak.
Slow Stochastic lets you know the close’s position relating to the current trading range. It consists of two lines, %K and %D, oscillating between 0-100 vertical scale. %D is the average of %K — the main line.
A %D above 75 denotes an overbought condition. It helps you to determine when to trade. For example, you should buy when the fast %D rises above the slow %D.
And here’s the more exciting part:
The Way Forward
You don’t have to struggle collecting and finding technical indicator values. A trading platform such as Metatrader4 simplifies your trading by presenting various charts and technical indicators. All you need is to choose and trade with a forex company, log in to the mt4 platform, navigate to charts and pick and view trends. And voila! You are winning thanks to making data-driven decisions.