The whole purpose of chart analysis is to put odds in our favor when we trade. There are no magic crystal balls when we trade but we can sure look to improve the success of our trades by following some simple rules.
The first thing we need to remember is that news trumps all. No matter how likely a move may be according to a chart analysis – if major news is released, the chart analysis is thrown out the window. We need to be aware when major economic news is released. There are many economic calendars on various sites that show the numerous economic reports being released as well as categorizing the news as to the potential impact – high, medium, low, or none. Pay close attention to the high impact news. One such site is http://www.fxstreet.com/economic-calendar/.
The best way to put odds in your favor is by only trading with the trend. Buy during up-trends and sell during downtrends. Do not try and predict the one or two days that the currency goes against the trend. Usually those moves against the trend are small moves. Take advantage of the bigger moves in the direction of the trend that may occur four or five days in a row at a time.
Look for support and resistance levels which represent buying and selling points that have already been determined by the market. The simple rules are buying at support and selling at resistance.
Do not overly rely on indicators. Trend and support/resistance levels are more important than indicators. Use the indicators for added confirmation or to use more caution. Just as we do not want to let one day determine our trend, use the trend of indicators more than what the indicator is saying at this particular time.
Learn to recognize chart patterns. Chart patterns not only give us a bullish or bearish indication, but a target price for the currency. Many patterns favorably reach its target price about 75% of the time or more.
Lastly, if a chart is unclear – WE DO NOT NEED TO TRADE. Only trade when a chart clearly puts the odds in our favor.
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