Forex technical analysis can help in making very good profits if used properly. If you observe any Forex chart, you can notice that there is repetition of trends frequently and you can profit by spotting these trends. But it is not very easy and more than 95 percent of traders lose money due to some common mistakes with technical analysis which you must try to avoid.
1. Forex Charts can not predict the future
Many Forex traders hope that they can estimate the future currency prices with Forex technical analysis which is not true. If technical analysis alone can forecast the future, then every body will know the price of tomorrow by today itself which means everybody can make profits. The movement of currency prices takes place due to opinion difference among different people and if everyone has same opinion, there will not be any movement of prices.
There are several theories like Elliot wave theory and some currency trading systems established on Fibonacci numbers sequence which claim that currency prices could be predicted exactly which is not true.
2. Use of very short time spans
Trading is based on luck and odds and is not purely scientific. The technical analysis is done to trade with better odds for which you need accurate and valid date. You will usually need data of several months or at least several weeks.
Many traders make the mistake of taking results of daily data and predict their odds which are very foolish. The novice traders start with day trading and they suffer many losses. You must base your trading strategies only by following long term trends. Day trading is not a good method of trading and it can lead to losses.
3. Lack of usage of confirming indicators
Many Forex traders who use technical analysis are interested in buying into support, selling into resistance levels with the expectation that it will hold. But this is not good method as you are trying to predict the market prices with guessing.
But you must use momentum indicators for timing your entry and exit into traders so that you can predict the rate of price changes. If you sell into resistance, you can do it only when price momentum reached below support so that your odds are better. If you are not using momentum indicators, then your odds are not good and you can face losses.
4. Using lot of technical indicators:
Lot of Forex traders hope that if they use many indicators, then they can have good profits but using more than four indicators is mere waster. The simple trading systems and trading strategies work well as they help to you spot the price trends, understand support and resistance levels and some momentum indicators like relative strength index or stochastic indicators. By using such indicators, you can improve your trading skills and gain better profits.
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