I would say the vast majority of traders like to think they use forex technical analysis to make their decisions when it comes to opening and closing trades.  But honestly I don’t think this is the case.  Their idea of forex technical analysis probably differs a lot from me.

Most people consider the principles of forex technical analysis is where a trader studies charts on the particular currency pair and decides when it is most advantageous to buy and sell. As opposed to fundamental analysis where the trader uses economic news as their main reason to trade.

Well, I agree with this.  BUT the problem with most traders that claim to use forex technical analysis, aren’t analyzing anything!!

If you don’t believe me, just think about what most traders’ charts look like.  I bet you are thinking about charts that are filled with loads of indicators, colors, lines, etc…It looks like a paining instead of a chart.

This is the kind of thing that I am talking about.

How in the world can somebody call this analysis when all these indicators are the ones doing the analyzing??

Most of these traders don’t really know what is going on in the market.  They are just taking the word of these indicators.  For example, Stochastics. With Stochastics, traders believe that this indicator can tell them when the market is overbought or oversold. How does one come to that conclusion.  Just because the stochastic lines are above 80 and below 20.  Doesn’t that seem kind of random and arbitrary to you??

I am firm believer if you can’t explain the underlying reasons why you would enter and exit a trade, then you shouldn’t be taking it in the first place.  This is where actual forex technical analysis comes in. The ability to comprehend what the price movement of a given currency pair is doing to be able to predict the future direction of the price, is what I like to call analysis, because it places the responsibility on the trader, not the particular indicators they are using.

By: John Templeton

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