The Point of Technical?

Beginner Questions
1

Hello all,

As I was reading a few articles dealing with Forex, I came about an interesting article dealing with Technical Analysis and Forex. According to the article, it states the two have no relation to each other. It then gives examples about how many factors that actually drive the market, yet don’t give a darn about the technicals and simply trade.

Being educated as I am, I do understand that some technicals, such as Moving Averages and perhaps Stochastics serve their purpose as alerting you which way the market is generally heading, but there are some that don’t make sense. The best examples are Pivot Points and Fibo.

Most people swear by such miracles, yet there is something that does make me wonder if they truly matter. Banks (Being some of the main money movers) don’t ussually trade under the assumption that technicals work, but whether they are in need of a certain currency or other factors. Since individuals don’t seem to truly control the rate, what is the point of such systems? The banks don’t care, the economy doesn’t care and the Fed doesn’t care.

So I do wonder, why use it then? While some do serve purpose as FOrex does move in trends, what is the point of others? If people and their emotions only make up a fraction compared to the cold harded banks why bother?

2

Of course there are both extreme camps when it comes to this age old question. You have the pure technical people that swear up and down. You also have the pure fundamentals that swear up and down. I believe if you are pure technical or pure fundamental you can be successful. Of course you can always have a mixture of both. It is also certainly true that all fundamentals are not created equal and the same is true for technical. So as a trader one must find out which ones are most valid and see if you can get those to work for you in a trading plan. If you can do such a thing then your odds of succeeding are greatly increased. You can certainly dismiss one type of analysis and be a purist and succeed, but if that isn’t your thing then don’t do it. Personally I am a technical type of dude. Also note there is way too much information and of course we can not consider all factors that effect price to make a decision. On the technical side you are making a generalization with our indicators but then most of us go a step further and generalize those indicators to make our decisions. Now if that is a smart idea I have yet to decide.

Just remember both have their place and you will just have to decide for yourself. I think technical indicators are best if you are day or swing trading. However, if you are position trading then your basis should probably relay on fundamentals. Too tired and need to get to bed so that is all for now. Ill write futher later :wink:

3

As I was reading a few articles dealing with Forex, I came about an interesting article dealing with Technical Analysis and Forex. According to the article, it states…
As traders we all strive for an “edge”, a system which alerts to a moving market.
Now if any analysis, technical or fundamental, can give you that “edge” & if it works for you then it has done it’s job.

I have used pivot points & fibo with some success, but only with other indicators etc.

Just being involved in the forex dictates that you are involved in some form of analysis.

The question also needs to be asked, do the banks rely totally upon the forex to gain a profit?
Is it their only business concern?

4

While I agree, what works for others may not work for me and vice-versa, but there are valid points. The problem I see is that technical analysis works based on the assumption that other traders are doing the same. That’s why such systems were created for the stock market. However, I feel that retail forex traders hardly move the market, if at all. The true movers are large corporations, banks, the fed and the economy as a whole.

These factors coupled in with the global economy isn’t anything like stocks or other markets, for which the basis of these indicators were created for. Emotions, greed and fear are what drives stocks, yet for Forex, emotions are only drives the individual trader and not the market as a whole.

I am simply saying that these magic numbers, such as Fibo and PP and other special points of interest are of no concern to the ones who, on a whole, drives the market. While some success may be had, the ones who drive the market doesn’t follow such indicators. While I can list numerous examples of times when technicals just don’t work (just think about any time a bank/corporation needs a certain currency at any given time and exchange large sums of it) the only thing in my opinion that works is watching where the money flows, as in the relationship between supply/demand.

I am not bashing technicals at all, but I feel running the market solely on previous price actions and “magic numbers” just doesn’t make sense or hold any credibility behind it. I don’t see any solid information that Fibo numbers really are magical in forex. Who says their magical? In a market where 90% loose money, I seem to understand why and the successful ones do as well and is that such magic numbers don’t truly exist and aside from the few indicators that work, Fundamentals are what truly drives thisw liquid market.

I do wish to hear your opinions about how and why Forex works with such numbers though and success stories as well. I am not bashing anyone’s system and if you’re successful because of such a system, then all I say is congratulations and please share how you use such systems

5

The market does respond to buy sell buy sell. Over all it seems like with for example the gbpusd on a weekly basies is two steps forward and one step back two steps forward one step back two steps forward one step back then it changes the direction and does the same. Over simplified but there is a pattern. I have attached a couple of retracement probabilites in regards to daily and weekly. Meaning once the days high and low is established it retraces to these levels. Knowing when they are established is the mystery but normally it begins to retrace between 9:30am and 12noon eastern USD. It retraces to these levels the same day or before the end of the next trading days. For the weekly retracements that is the same except on a weekly basise. A person went back 8 years and found the numbers to pretty consistant.

6

Here is a couple of charts showing the daily and weekly retracements.

7

Good examples, but I just don’t see the reasons why prices must follow such suits as emotions don’t drive the market rather large “entities” without a care for such indicators. I feel like it’s basically just luck using some indicators suchs as fibo.

8

What do you use to base your trades on?

9

dark label brings up a good point.

technicals are all basically some form of algorythm that tracks previous price movements.

But here’s the thing, following momentum can make you money as long as you practice proper money management and trade management, ie protect your principle and your profits.

For example, catching trends and moving with the momentum, which is caused by institutions, is very profitable.

For example, EUR/AUS, starting on July 23, on a weekly chart, started showing strength.

If you had waited for 3 positive candles, to indicate positive momentum, and verified with RSI, which was 55, and stochastic, which was climbing but far from overbought, you could tell that something was up, that the Euro was appreciating against the Aussi dollar for whatever reason and jumped on board August 6 at 1.6200 or so.

Today RSI is 67, indicating very strong momentum, stochastic is 70, verifying what RSI says, and EUR/AUS is 800 pips higher than it was august 6.

technicals are popular because they work much of the time, in simplifying what the institutions do and why.

For example, if I see RSI 55 and climbing, slow stoch at 50 and climbing, I know there is strong upward momentum on a pair, and that it still has strong potential to continue for a while.

Why? Did a central bank change interest rates? Did some manufacturing order blow the market away one way or another?

Technicals are able to synthisize the price actions, which prices such fundementals, into a clear signal for retail traders like us.

After all, who has time to keep up with the numerous reports released each day, and to track the global economic ramifications of each.

I certainly don’t, but I do have time to spend 15 minutes/day checking the weekly charts and checking to see if strong momentum plays are building.

That’s really all I care about.

And your right in that nothing is magic.

There is no system, either fundemental or technical that is 100% right, that is why money management and trade management are key.

Remember that those who trade purely on technicals, believe that all news, all fundementals are already priced into a pair, due to the enormous liquidity.

10

The basis of technical analysis is patterns of behavior. It takes the view that we silly humans tend to act similarly under similar conditions. Those patterns of behavior play out in price action. Notice I said similarly, not identically. The patterns don’t always repeat, or do so exactly as they’ve done in the past. In general terms, though, patterns tend to repeat.

That’s why such systems were created for the stock market.

Actually, some of the earliest technical analysis tools - Candlestick charts -were created for use in the commodities market.

However, I feel that retail forex traders hardly move the market, if at all. The true movers are large corporations, banks, the fed and the economy as a whole.

While you are correct to say that large corporations and banks are influencers in price action since they represent large amounts of trading volume, you are incorrect with the rest. The Fed has not intervened in the market in a long, long time and doesn’t seem likely to do so any time soon. And the economy obviously is a nebulous thing which doesn’t actually trade. If you mean to say that interest rates and economic growth are things which go in to determining the value of a currency vis-a-vis other currencies, then sure, but only to the extent that market participants make them factors. Remember that for any factor to influence prices someone actually has to act on that factor. Otherwise it’s meaningless.

These factors coupled in with the global economy isn’t anything like stocks or other markets, for which the basis of these indicators were created for. Emotions, greed and fear are what drives stocks, yet for Forex, emotions are only drives the individual trader and not the market as a whole.

While it may be true that retail traders do not provide sufficient force to drive forex rates, you have left out of the equation the large players like hedge funds who sometimes trade $billions at a time. These positions are based on trading decisions made by individuals. As such, they are subject to the very same emotional influences as any other market. And just like retails traders they use a wide array of different analytic methods and trading systems.

I am simply saying that these magic numbers, such as Fibo and PP and other special points of interest are of no concern to the ones who, on a whole, drives the market. While some success may be had, the ones who drive the market doesn’t follow such indicators. While I can list numerous examples of times when technicals just don’t work (just think about any time a bank/corporation needs a certain currency at any given time and exchange large sums of it) the only thing in my opinion that works is watching where the money flows, as in the relationship between supply/demand.

I’m not sure how you are saying technicals don’t work in the case of a bank or corporation doing a currency exchange. That’s a business transaction which can influence price action, just like a corporation issuing shares in to the stock market. It really has little to do the validity of an analytic technique any more than any other specific transaction does.

… Fundamentals are what truly drives thisw liquid market.

I’ve been in the forex market for over ten years, both personally and professionally. My experience has been that forex is actually the most psychologically driven market of all. I don’t mean that it’s quite as subject to irrational actions as individual stocks and “panics” don’t happen. After all, it’s a much, much bigger market and harder to move. It’s more of a situation where the market as a whole develops a view about a currency or a specific pair and makes it happen - a self-fulfilling situation. If the market takes the view that the USD is weak, the USD is going to trade weakly.

Then there are very structural things like the carry trade. Recently we’ve seen that unwinding. As a result of it, the Yen has been appreciating dramatically. There is no “fundamental” basis for that considering the relative weakness of the Japanese economy and the low interest rates in Japan. The whole move has come about through a combination of the desire/requirement of some to unwind carry trade positions, which then fed in to the belief that the carry trade was unwinding, which led to it actually continuing to do so.

Regardless of all that, the bottom line is that you need to identify an approach to the market that works for you, one you have confidence in applying. For some people that is technicals. For others it’s fundamentals. Others are quantitative. Most are some blend.