Being new to trading, you have to gain knowledge of the basics and use the demo account of MetaTrader 5 to get familiar with trading. Other than that, it is very important to understand a popular method used to determine the movement of prices in forex and other financial markets – the Technical Analysis.
What is Technical Analysis
Technical analysis is a method that uses history to predict the possible price movement of a security in the future. Technical analysts believe that the past price action can be held as the most reliable indicator of the price action in the future. Technical traders are not the only ones that use technical analysis. There are also fundamental traders that utilize fundamental analysis in determining if it is time to buy or sell an asset in the market but use technical analysis in pointing out low-risk entry points.
Different Time Frames
Now that you’ve known that technical traders predict the price movement based on the price charts, it is time to know the primary variables that are involved in technical analysis – the time frames and the technical indicators.
The time frames that are found in charts can range from a minute, a month, or a year. Most technical traders use these time frames;
- 5-minute chart
- 15-minute chart
- Hourly chart
- 4-hour chart
The trader will pick the time frame that they want to use based on their trading style. For day traders, or those traders who enter and exit a position within a day mostly favor shorter time frames like a 5-minute time frame or 15-minute time frame. For long-term traders, hold their positions overnight or even longer. They prefer to use longer time frames like hourly, 4-hour time frame, daily time frame, weekly or monthly time frames.
For day traders, they might find the 15-minute time frame to be valuable because these traders are taking advantage of price fluctuations that happen throughout the day. Contrary to that, the 15-minute time frame could be insignificant to long-term trading.
Technical traders utilize indicators to help them predict the direction of the market price of forex and other assets. Here are some of the most common indicators used in trading nowadays.
This is the most common method of determining the price movement in the market. Candlesticks are formed out of the price action that happens during a single period on different time frames. Traders can choose the color of their candlestick based on their preference. Some traders use black and white while others use green and red, or yellow and blue.
Aside from candlestick, technical traders in MetaTrader 5 can also use Moving Averages in their trading strategy. It is considered one of the most widely used indicators by technical traders. Moving Average Crossovers is also common among traders. This indicator is used when you buy 10-period moving averages crosses that are above the 50-period moving average. Take note that the higher number in the moving average, the more valuable the price movement is.