| We’re focusing on technical analysis in this article | | | | signal when the shorter term crosses the longer term |
| with a description of some of the important | | | | moving average in the upward direction. Or a sell |
| indicators. | | | | signal if it crosses in a downward direction. For |
| We could say, all wealthy traders use technical | | | | example, you could use a 5 day versus a 20 day |
| analysis but not all technical analysis traders are | | | | moving average or a 40 day versus a 200 day |
| wealthy although T.A. is the most precise way of | | | | moving average. |
| trading the Forex market. It’s also useful note | | | | There are simple moving averages, linearly weighted |
| that fundamentals play their part in indicating whether | | | | which gives more importance to the recent prices or |
| a price will move up or down. It gives you the edge | | | | exponentially weighted. The latter is a favourite |
| over other traders. | | | | because it considers all prices in a time period but |
| Technical Analysis is so powerful because of a few | | | | emphasizes the importance of the most recent price |
| reasons | | | | changes. |
| 1) it represents numbers. All information and its | | | | MACD |
| impact on the market and traders is represented in a | | | | Based on moving averages, a MACD plots the |
| currency’s price. | | | | difference between a 26 exponential moving average |
| 2) It helps to predict trends and the foreign | | | | and a 12 day exponential moving average, with a 9 |
| exchange market is very ‘trendy’. | | | | day used as a trigger line. If a MACD turns positive |
| 3) Certain chart patterns are consistent, reliable | | | | when the market is still plummeting it could be a |
| and repeat themselves. T.A. helps us to see them. | | | | strong buy signal. The converse also works. |
| Here’s one way of putting technical analsysis into | | | | Bollinger Bands (sounds like an elastic band) |
| perspective (wish I had a dollar each time I said | | | | Prices tend to stay between the upper and lower |
| ‘technical analysis’). We all know that prices | | | | bands. They widen and become more narrow |
| move in trends. Research has shown that those that | | | | depending on the volatility of the market at the time. |
| trade ‘with the trend’ greatly improve their | | | | A sell signal would be when the moving average is |
| chances of making a profitable trade. | | | | above the Bollinger bands and vice versa for a buy |
| Trends help you become aware of the overall | | | | signal. Some traders use it in conjunction with RSI, |
| market direction and often rescue us from less then | | | | MACD, CCI and Rate of Change. |
| profitable entry points. I attended a 2 day course | | | | Fibonacci Retracement |
| costing me over $2500 AUD and the biggest thing I | | | | Describe cycles found throughout nature and when |
| learned from it was the need for discipline and | | | | applied to technical analysis can find shifts in the |
| emotional control. The content was so basic that | | | | market trends. After a climb prices often retrace a |
| within the next 3 or 4 articles, I would have covered | | | | large portion sometimes all of the original move. |
| all of it. So learning the ‘tools of the trade’ | | | | Support and resitance levels often occur near the |
| the technical indicators and their applications will help | | | | Fibonacci retracement levels. |
| you to diagnose what the market is doing but even | | | | RSI |
| then you need to expect ups and down and trade | | | | Relative Strength Index measures the market |
| with emotional control. | | | | activity to see whether it’s overbought or |
| Stay with the trend, follow the price. | | | | oversold. This is a leading indicator so helps to indicate |
| Find the price of the currency pair. If EUR/USD is | | | | what the market is going to do (awesome!). Ahigher |
| 1.4224 and moves to 1.4180 then 1.4090 then the | | | | RSI number indicates overbought (so expect a |
| market is in a down trend. Concern yourself only with | | | | bearish shift) and a lower number indicates oversold. |
| what the market IS doing not what it might do. | | | | Successful traders will generally use 3 or 4 signals to |
| Listen to the markets and the indicators will backup | | | | provide a more conculsive signal before entering a |
| what they are telling you. | | | | trade. |
| Moving Averages. | | | | Always remember, “If in doubt, stay out!” . |
| Tell you the price at a given point of time over a | | | | Technical analysis doesn’t factor in political news, |
| defined period of intervals. They are called moving | | | | a country’s economic profile or fundamental |
| because they give you the latest price while | | | | supply and demand. |
| calculating the average based on the selected time | | | | Technical Analysis helps us figure out how much |
| measure. | | | | money to risk on a trade. How and when to enter |
| They lag the market so to give you an indication of | | | | the market and how to exit the trade for profit or |
| a change in trend, use a shorter average such as a 5 | | | | to minimize loss. |
| or 10 day moving average. By combining a shorter | | | | I sincerely hope you found this article useful. |
| term and longer term M.A. you can detect a buy | | | | |