Welcome back. You are here because you placed that trade and you are seeing some positive and negative values without you knowing why. Sit tight and learn.
In forex trading; profitable trading is a function of good analysis. You don’t just enter a trade (buy or sell) because you want to but because the market is asking you to. Now for you to know when the market is asking you to enter a trade (buy or sell) is only after you have run an analysis of the market. There are two types of analysis, technical and fundamental analysis. Let’s deal with them individually.
Forex Technical Analysis
Technical analysis is a method of forecasting price movements and future market trends through the study of past market action which take into account price of instruments, numbers – quotes, charts, indicators, volume of supply and demand, past market data, e.t.c. Unlike fundamental analysis, technical analysis is focused with what has actually happened in the Forex market, rather than what should happen. Technical analysis involves the use of technical indicators to determine price movement. There are many types of technical indicators. No don’t walk away; you don’t need to know all the indicators. You only need to understand 2 or 3 of these technical indicators and you will be more than fine and excellent in your trading.
The main idea behind Forex technical analysis is the postulate of functional dependence of the future market technical data on the past market technical data. As well as with fundamental analysis, technical analysis is believed to be self-sufficient and you can use only it to successfully trade Forex. In practice, both analysis methods are used.
FOREX INDICATORS
Indicators are used for identifying, or even creating patterns from the chaos of the currency market. In all cases, they receive the raw market data as the basic input, and manipulate it in differing ways to create actionable trading scenarios. The natural consequence of this description is that indicators are not tools of prediction. Instead, they are used to give order to the price data, so that it is possible to identify possible opportunities which can be exploited profitably by the trader. Indicators must be used with an appropriate money management strategy in order to deliver the desired results.
There are many different kinds of indicators (be it technical or fundamental) , and it is not at all a hard task to define one’s own tools for the purpose of evaluating the market provided that a basic literacy in averages is attained, what is desired from the created indicator is made clear. Different constructions will lead to differing techniques which can then be employed most effectively as part of a forex trading system/strategy.
So you can regard indicators as your compass and ruler in navigating waves of the forex market. We would use a compass or a ruler to predict when or where a storm will hit, but every sailor knows their usefulness in defining a path over the high seas. Use your indicators to plan your journeys in forex, while protecting your funds with proper money management techniques, and all will be well for you.
In order to simplify the different things that Forex indicators can do for an individual, please review over the different activities that these indicators have the ability to perform. Understanding the different things that these indicators can perform are essential to understanding why so many people are keen to having these to assist them with currency trading.
You just dash to http://www.onlinetradingconcepts.com to study indicators such as MACD, Stochastic oscillator, Bollinger band,Supports,Resistant and moving averages and dash back for the remainder of the class. Study the under listed topics there.They are well explained with diagrams. Get some fun there and come back.
Stochastic Oscillator indicates both the oversold and the overbought conditions on a scale of 0-100%. During up-trends the closing prices will concentrate on period ranges for the higher part of the trade. However, during the downtrend the closing prices near an extremely low level on the periods range. These indicators will help you correctly decipher the up trends as well as the down trends of the Forex market.
Stochastic Fast
Stochastic Fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user-input, usually 14-periods). In general, stochastics are used to measure overbought and oversold conditions. Above 80 is generally considered overbought and below 20 is considered oversold. The inputs to Stochastic Fast are as follows:
- Fast %K: [(Close - Low) / (High - Low)] x 100
- Fast %D: Simple moving average of Fast K (usually 3-period moving average)
Stochastic Slow
Stochastic Slow is similar in calculation and interpretation to Stochastic Fast. The difference is listed below:
- Slow %K: Equal to Fast %D (i.e. 3-period moving average of Fast %K)
- Slow %D: A moving average (again, usually 3-period) of Slow %K
The Stochastic Slow is generally viewed as superior due to the smoothing effects of the moving averages which equates to less false buy and sell signals.
Stochastics Buy & Sell Signals
Stochastics Buy Signal
When the Stochastic is below the 20 oversold line and the %K line crosses over the %D line, buy.
Stochastics Sell Signal
When the Stochastic is above the 80 overbought line and the %K line crosses below the %D line, sell.
How to Insert stochastic oscillator unto forex trading platform.
1) click on insert on your menu bar
2) Place your mouse pointer on indicators
3) Scroll to oscillators and place your pointer on it
4) Locate and click on stochastic oscillator. Set your %k, %D and slowing values and click on OK. Do you notice anything? Yes you should see a blue and red curvy lines at the bottom of your chart graded 0 20 80 100. If you don’t please go over the process again.
Bollinger Bands
Bollinger Bands is a versatile tool combining moving averages and standard deviations and is one of the most popular technical analysis tools available for traders. There are three components to the Bollinger Band indicator:
- Moving Average: By default, a 20-period simple moving average is used.
- Upper Band: The upper band is usually 2 standard deviations (calculated from 20-periods of closing data) above the moving average.
- Lower Band: The lower band is usually 2 standard deviations below the moving average.
There are three main methodologies for using Bollinger Bands, discussed in the following sections:
Playing the Bollinger Bands
Playing the bands is based on the premise that the vast majority of all closing prices should be between the Bollinger Bands. That stated, then a stock’s price going outside the Bollinger Bands, which occurs very rarely, should not last and should “revert back to the mean”, which generally means the 20-period simple moving average. A version of this strategy is discussed in the book Trade Like a Hedge Fund by James Altucher.
Buy Signal
In the example shown in the chart below, a trader buys or buys to cover when the price has fallen below the lower Bollinger Band.
Sell Signal
The sell or buy to cover exit is initiated when the stock, future, or currency price pierces outside the upper Bollinger Band.
These buy and sell signals are graphically represented in the chart of the E-mini S&P 500 Futures contract shown below:
More Conservative Playing the Bands
Rather than buying or selling exactly when the price hits the Bollinger Band, the more aggressive approach, a trader could wait and see if the price moves above or below the Bollinger Band and when the price closes back inside the Bollinger Band, then the trigger to buy or sell short occurs. This helps to reduce losses when prices breakout of the Bollinger Bands for a while. However, many profitable opportunities would be lost.
Also, some traders exit their long or short entries when price touches the 20-day moving average.
A different, and quite polar opposite way to use Bollinger Bands is described on the next page, Playing Bollinger Band Breakouts.
Bollinger Band Breakouts
Basically the opposite of “Playing the Bands” and betting on reversion to the mean is playing Bollinger Band breakouts. Breakouts occur after a period of consolidation, when price closes outside of the Bollinger Bands.
The chart below shows two such Bollinger Band breakouts:
Bollinger Band Breakout through Resistance Buy Signal
Price breaks above the upper Bollinger Band after a period of price consolidation. Other confirming indicators are suggested, such as resistance/support being broken
Bollinger Band Breakout through Support Sell Signal
Price breaks below the lower Bollinger Band. It is suggested that other confirming indicators be used, such as a support line being broken, such as on www.onlintradingconcepts.com
This strategy is discussed by the man who created Bollinger Bands, John Bollinger.
Bollinger Bands can also be used to determine the direction and the strength of the trend. The chart below of the E-mini S&P 500 Futures contract shows a strong upward trend:
How to Insert Bollinger Bands unto your forex trading platform
1) Click on insert from you’re your menu bar
2) Place your mouse pointer on indicators
3) Scroll to trend and place your mouse pointer on it
4) Click on Bollinger bands
5) Click on parameters
Change period to 20, Deviations to 2, Apply to : close, choose the color and thickness of your bands from styles and click on OK.
You should see some lines on your chart otherwise make sure you go through the process correctly.
Now I can see somebody adjusting his seat because all these are beginning to make sense. Go ahead and adjust your no one is stopping you.
MACD
The MACD indicator is one of the most popular technical analysis tools. There are three main components of the MACD shown in the picture below:
- MACD: The 12-period exponential moving average (EMA) minus the 26-period EMA.
- MACD Signal Line: A 9-period EMA of the MACD.
- MACD Histogram: The MACD minus the MACD Signal Line.
The MACD indicator is an effective and versatile tool. There are three main ways to interpret the MACD technical analysis indicator, discussed on the following three pages:
Study the much as advised above.
