This article looks at what you should do when forex analysis goes wrong.
To trade on the forex market you have to know how to complete analysis. There are two ways that analysis can be done and they are technically and fundamentally. A lot of traders feel that when they use the analysis methods they are going to be able to trade correctly. What some of these traders do not consider is that there are times when the analysis that you complete can go wrong. This could be through no fault of your own and you need to know about this.
The Problem with Analysis
There are a number of problems that you can face when you complete market analysis that you should know about. There is not much that you can do about these problems, but knowing that they are there can help you when you trade. The primary problem with analysis of the forex market is that it is all subjective.
When you analyse the forex charts or the news you are interpreting what you think will happen. While you are going to be using set parameters to do this you are still relying on what you can see. This causes the problem that some people see things in the market that others do not. If you are seeing something that is not actually there then you are going to make a loss on the market.
The best way to try and limit the impact of this problem is through the use of verification. There are a number of ways that you can verify what you see on the market. The first way is to use additional indicators on the market to confirm what you see. Another way is to look for information that confirms what you are looking at. When you use the latter you will have to be careful because you can easily fall into trading with the confirmation bias.
When Forex Indicators Fail
There are a number of times when you will find that you forex technical indicators fail. These times are when you see a movement in price action, but the indicators are telling you something different. This can happen because of the way that the indicators look at the market.
Most technical indicators are lagging indicators that look at the historical movement of the market. This historical movement is not a sure sign about what is to come. There are times when the historical averages that the market is looking at divert from what the market is actually doing.
There are a number of strategies that you can use to actively trade on these indicator divergences. However, this is not something that all traders should look at and you cannot use this as a primary trading strategy. If you are going to trade on the divergences you have to understand that they do not always come about.
The Safe Thing to Do
When you are faced with technical indicator divergences there is a safe route that you can take. This route is to not trade at the time of the divergence. Some traders feel that this is a wasted opportunity while others traders feel that you need to know when not to trade.