Better understand some technical analysis and indicators

Better understand some technical analysis and indicators

We focus on technical analysis in this article with a description of some of the important indicators.

We may say, all rich traders use technical analysis, but not all technical analysis are rich traders, though TA is most precise way of trading the Forex market. It is also helpful note that the fundamentals play their role in indicating whether the price will move up or down. It gives you an advantage over other traders.

Technical analysis is so powerful for several reasons

1) represent numbers. All information and its impact on the market and traders in the price of one currency is introduced.

2) It helps to forecast trends and the foreign exchange market is very "modern."

3) Some chart patterns are consistent, reliable and repeat. T.A. helps us to see them.

Here's one way of putting into perspective the technical analsysis (wish I had a dollar every time I said "technical analysis"). We all know that prices move in trends. Studies have shown that those who trade "with the trend" greatly improve their chances making a profitable trade.

Trends help you become aware of the overall market direction and are often saved us from less profitable entry points. I attended a 2 day course cost me about 2.500 $ AUD and the biggest thing I learned from this is the need for discipline and emotional control. The content was so basic that over the next 3 or 4 articles, I covered all of it. So learning "tools of trade" for technical indicators and their applications will help to diagnose what the market is doing, but even then you have to expect ups and down and trade with emotional control.

Stay with the trend, monitor prices.

Find the price of the currency pair. If EUR / USD 1,4224 steps is 1.4180 then 1.4090 then the market is in a down trend. Concerns are just what the market is not doing what it could do. Listen to the markets and stocks to the indicators they are telling you.

The moving average.

tell price in a given point in time during the defined time intervals. They are called moving because they give you the latest price in calculating the average based on the selected time measure.

They lag the market, so to give you an indication of changing trends, use a shorter average, such as 5 or 10 day moving average. By combining the short term and long-term MA is able to detect a signal buy when the shorter term crosses the longer term moving average in an upward direction. Or if you sell signal passes in a downward direction. For example, you can use the 5-day versus 20 day moving average or 40 days versus 200 days moving average.

There are simple moving averages, linear weighted which gives more importance to recent prices or exponentially weighted. The latter is a favorite, because he thinks that the prices of all time, but emphasizes the importance of recent changes in prices.

MACD

Based on moving averages, the MACD plots the difference between 26 exponential moving average and 12 day exponential moving average, with 9 per day is used as a trigger line. If the MACD turns positive when the market is still plummeting this could be a strong signal to buy. Conversely, also works.

Bollinger Bands (sounds like an elastic band)

Prices tend to remain between the upper and lower bands. They expand and become more, depending on market volatility at that time. A sell signal would be when moving average is above the Bollinger bands and vice versa for a buy signal. Some traders use it in combination with RSI, MACD, CCI and the rate of change.

Fibonacci retracement

Describe cycles found throughout nature and when applied to technical analysis can be found shifts in market trends. After climbing prices often retrace much sometimes all of the original move. Support and resitance levels often occurred near the Fibonacci retracement levels.

RSI

Relative Strength Index measures market activity to see whether it is overbought or oversold. This is a leading indicator that helps to show what the market will do (awesome!) A higher number indicates overbought RSI (so expect a bearish shift) and a smaller number indicates oversold.

Successful traders will generally use 3 or 4 signals to provide more conculsive signal before entering the trade.

Always remember, "If in doubt, stay out!" Technical analysis does not factor in political news, economic profile of a country or basic supply and demand.

Technical analysis helps us understand how much money to risk on a trade. How and when to enter the market and how to exit the trade for profit or minimize loss.

I sincerely hope you find this article useful.




Previous Article
- Introduction to Forex Trading