Forex Trading Analysis

By: Mel Joelle

There are two main types of Forex trading analysis that traders use as a substantial part of their daily trading activities.

The first of these is pre-trade planning where the trader will analyze price charts using various analytical tools in an effort to gain an edge over other traders in anticipating future price levels.

The other type is post-trade, which is used to gain insight as to which trading techniques and strategies were productive, which could be improved and which need to be discarded entirely.

Pre-trade analysis certainly gets the most attention, as the inability to do this effectively will quickly eliminate any necessity to engage in post-trade analysis.

Many people hear the phrase technical analysis and their eyes glaze over with thoughts of mind numbing mathematical equations and boring examinations of historical data, but this need not be the case.

Here is a brief and simple approach to pre-trade analysis that will allow you to get down to the business of trading in a matter of minutes. That will be followed by an equally, perhaps more brief explanation of post-trade analysis and its benefits.

Pre-Trade Analysis

Look at a price chart. Are prices trending higher, lower, or remaining more or less constant?

If an uptrend is present, prices will be making a series of higher highs and higher lows. In a downtrend, prices will be making a series of lower lows and lower highs. If neither of these scenarios is present, the market is sideways or range bound and is best avoided entirely.

This one simple skill of recognizing the presence or absence of a trend, a skill remarkably absent in many traders, will do as much or more toward developing a profitable bottom line than any elaborate combination of technical indicators.

Most trading platforms have a built in indicator that permits making the determination of the presence or lack of a trend with a quick glance.

Post-Trade Analysis

There are really only two simple things you need to determine with your post-trade analysis: the win/loss ratio and a comparison between the average winning trade and the average losing trade.

Of these two, the average win versus the average loss is the more important.

It does not matter how many winning trades you make if the average of the amount lost on the losing trades too greatly exceeds the average made on the winning trades.

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