Graphical analysis is one of the traded instruments, based on the search of shapes that is building price trend. The definition of shape data allows to forecast the further price behavior and determine a good point to enter the market. Professional traders believe that the graphical analysis of the Forex market itself cannot be used as strategies, because indicators give more accurate signals to open positions. But the application of the graphic analysis of the simplest technical indicators is the basis of many professional strategies.
Tips for building lines of graphical analysis
Support line (resistance) should be built at least in 3 points.
In most cases, these lines build somehow by 2 points, allowing a lot of inaccuracies, because of that many strategies have failed. The following is an example of what the support line can be done in several ways. You see, three lines of support at the same trend correction is too much.
Another situation — the level of resistance built on three points. Let this situation in a graphical analysis in the Forex market happens infrequently, but it is better worked through in practice.
Draw lines on the minimum or maximum value of the bars, do not use the closing price.
There are different ways to build shapes. Someone draws a line with all the prices, someone is using close prices of bars. I would recommend to use all prices as on different timeframes the closing price of the bars will be different. And if there are highs and lows, then why not to consider in drawing level?
Calculate the risk-reward ratio
Don’t count on 90% of profitable trades — sometimes just one profitable trade can cover the loss from the previous few entries into the market. Graphic analysis of Forex used as clues and can not give absolute result. Refuse a transaction if your stop is equal to the income, potential income should be at least 2 times higher than the potential loss. Use a trailing stop to protect profit position.
I also recommend to use a graphical analysis in the Forex market for trading different instruments. First, a large profit is able to bring more liquid instruments, but a good situation to enter is not often. Therefore, trade will be more effective if major currency pairs add contracts for difference and futures. To fall below H1 deemed ineffective, because on smaller time frames there are false breakouts.
If anyone has any questions or comments, I invite to discussion in the comments after the article.