Forex Trading - Can You Have an Edge With Technical Analysis?

It would seem that if you’re using the same techniques, the same indicators, the same trading methods as everyone else, you couldn’t possibly have an edge in the forex market. Right?

There is no way that MACD, etc could still be effective. Every charting package known to man kind has these indicators in them.

I’m going to let you in on a “secret” (it’s not really a secret, but it is the key to this discussion)…

Entry isn’t the most important thing in executing a trade. Entry into a trade is what all the indicators are helping you do. So that said, what are all the other factors in a trade? There are two other huge items in any trade. They are your money management, and your exit. Those two are related, but separate and very important.

Listen, if someone is risking too much per trade, that will effect their judgement. Right there, they have lost their edge. Or if someone exits too fast (or too slow), again they have lost their edge. In both cases, the traders have all entered the same way, however, those who messed up on money management and/or exiting the trade have lost money.

So, yes, it’s quite possible to use common indicators and have and edge, because the edge isn’t in the indicators, but what you do after you use them.

Fair enough, but that then opens up the issue of what to do to learn how to properly manage your funds, and how to exit trades properly. Money management is best learned by studying the master traders (think Market Wizards books).

When to exit trades is something you have to test.

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Nathan Pennington is a forex trader and the author of winningforextrading.com Winning Forex Trading -THE Definitive Guide