Technical traders use technical indicators and stop losses and take profit stops to help him decide on the correct trade entry and exit points.
A technical trader is a trader that makes use of technical indicators, written material from various trading newsletters and periodicals, and embeds them with the strategy that he has personally developed to suit his trading style. A technical trader knows that rules are important and also confirmation of the entry point before initiating a trade.
Trading As a Business- The Technical Trader:
Technical traders focus all their energies on technical indicators. There are many technical indicators for a trader to learn and use and they vary from Moving Averages which can be simple, exponential or weighted to P/E ratios and candlestick charts. There are also some 26 other technical indicators which have to be learnt and tested. There are so many indicators to learn and not much time to do it, especially for an impatient newbie trader.
The problem that a technical trader may face is that in trying to learn the uses of each and every indicator the trader is focused on trying to find the one magic indicator that he thinks will be his holy grail. After realizing that he can’t find a Holy Grail indicator the trader then embarks on a search for the so called expert who has found an indicator or indicators that are foolproof. Once a trader is on this particular roundabout it’s difficult to get off. Such traders travel to all the seminars they can possibly take in and try to assimilate as much information as they can about technical trading. In most cases these traders start losing money and begin to wonder whether they will ever make money. It is then that the penny drops and they begin to learn the worth of placing the appropriate stop losses.
Stop losses or stops are in fact the holy grail of trading. It is the stop loss and the take profit stop that helps the trader manage his risk and manage his cash. Effective risk management enables the technical trader to minimize his losses and maximize his profit. Placing stops too near the entry point results in getting stopped out too soon and losing out on potential profits. Placing stops too far away from the entry point results in taking a bigger hit than the traders risk management model allows. Learning these techniques enable the technical trader to trade at the optimum trading efficiency for his pocket.
To a technical trader, technical indicators are the factors which can hinder or boost their forex trading profits, thus it's important that they understand some of the most common groups of technical indicators. These are:
Now that the technical trader has learnt the art of risk management and cash management, and some fairly common technical analysis indicators he can trade with confidence knowing that he only needs to win 60% of the time to make some decent profits.
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