RoboForex Explains: 7 Rules of Technical Analysis

For technical analysis to be truly effective, it is important to approach it systematically and consistently.

👉 RoboForex tip: get daily forex technical analysis of a major currency pairs and commodities at RoboForex Market Analysis page.

1. Define Your Goals

First and foremost, determine the goals of your analysis. Answer key questions: what is your trading timeframe – short-term (minutes, hours), medium-term (days), or long-term (weeks and months)? Define the type of trades you want to make – are they long-term investments or short-term speculative operations? Also, decide which financial instruments are your priorities: stocks, currencies, commodities, or cryptocurrencies. Having a clear goal will help you avoid overcrowding your chart and using tools chaotically.

2. Study the Chart

Before using indicators, carefully study the clean chart. Visually identify key support and resistance levels – the areas where the price has paused – as well as local highs and lows, which indicate market interest zones. Determine the current market movement: it could be an uptrend, downtrend, or sideways (flat) movement. Understanding the general direction and market condition will help reveal its strengths and weaknesses.

3. Use Key Tools

Use a limited number of key tools to avoid overloading the chart. For example, trend lines and channels can help you define the direction of movement. Fibonacci levels are convenient for identifying potential reversal or correction points. Trading volumes can confirm the strength of a current move or indicate an upcoming reversal. Oscillators such as RSI or Stochastic are also useful, signalling overbought or oversold market conditions, while moving averages help determine trends and potential reversals. Choose only those tools that are clear and convenient for you.

4. Analyse Candlestick Patterns

Analysing candlestick patterns is highly important. Often, candlestick formations give leading signals, later confirmed by technical indicators. Pay attention to patterns such as:

• Doji
• Engulfing
• Hammer
• Inverted Hammer
• Shooting Star
• Hanging Man

Timely recognition of candlestick patterns can provide crucial signals for entering or exiting the market.

5. Consider Market Context

Do not forget about the market context. Apart from technical analysis, it is necessary to consider fundamental news, macroeconomic indicators, economic calendar, and even political events that may impact the market. Technical analysis is only part of the overall picture, and to fully understand the situation, it is important to consider all factors comprehensively.

6. Develop a Trading Plan

Having a trading plan is a mandatory condition for effective technical analysis. Clearly define your entry and exit levels in advance, set Stop-Loss and Take-Profit levels to help avoid emotional and impulsive decisions. Determine your position size based on potential risks – never invest your entire capital in a single trade. Well-defined parameters will help you act with discipline and awareness.

7. Keep a Trading Journal

Additionally, it is important to keep a trading journal. Record the reasons for entering a trade, the tools you used, the result, and the conclusions drawn after closing the position. Regular analysis of your journal will help identify the strengths and weaknesses of your trading strategy.

Finally, always check your decisions. Never blindly trust a single signal or indicator – seek confirmations from other tools, candlestick patterns, and fundamental data.

👉 RoboForex tip: gain deeper forex market insights in our Market Analysis articles.

Conclusion

Effective technical analysis is not fortune-telling on charts but a clear and consistent system of actions. Use a minimal number of indicators, stay disciplined, and always consider the market context. Remember, success comes to traders who think, analyse, and remain disciplined – not to those who simply draw lines and take unjustified risks.