3 Step Technical Analysis Process
Our goal as Forex traders is to be consistently profitable. But we need a consistent process to achieve success year after year.
A framework allows us to study the results of our actions. Therefore we can make success repeatable by simply following the same process.
Now, suppose you are a technical analyst. In that case, it can be challenging to settle into a “study ritual” when observing the market simply because there is so much information flying at you from countless currency pairs (and maybe you trade other financial instruments).
Although it is challenging to get into a rhythm when analyzing, it is not impossible as long as you have a logical flow/ structure. So let me introduce you to the 3-step process that helped me.
1. Plot areas of supply and demand
Technical analysis is all about finding the areas where the market will likely shift i.e. zones of supply and demand.
You may prefer horizontal support and resistance levels? Or maybe you implement trendlines more? Whatever your preferred method, plot these tools on your chart so you can get a picture of where the market is and where it could be going.
Remember to update your charts constantly. The frequency of updates depends on whether you are a scalper, swing trader, or position trader.
The crucial rule of this step is you must complete this analysis long before you act on a specific opportunity. Otherwise, you are probably heightening the importance of a level/ zone to fulfill the desire to place a trade.
2. Determine the trend
This step is not for trend traders only! Why do I say this? Because trading can be broken down into three main approaches:
In all 3 you need to know where the market will either join it, trade against it or leave it alone until there is a range.
I suggest you ask yourself what the trend is in the short, medium, and long term so you can determine if the probabilities favor your future positions, and this will also help in timing your entry to the tee, which brings us to the last step.
3. Check a lower timeframe for an entry opportunity
After getting an idea of where price is heading, your next reaction should be to check on a lower timeframe for an entry opportunity.
Executing on a lower timeframe allows you to keep your risk tight and achieve the maximum potential reward by entering earlier.
But that doesn’t mean you should shoot for anything that moves. Make sure there is confirmation signaling the market should continue in your desired direction. And then it is time to open your well-planned trade.
It’s as simple as that, follow this framework, and you will enter “the zone” while analyzing your charts. With this level of focused attention, your “feel” for the market will become much stronger.
You will also notice how necessary preparation is to achieve the best possible results. Instead of rushing your analysis while the market is moving, you can wait for the price to come to you and pull the trigger at the right time.
Processes equal profits.