What Is So Fascinating About Technical Indicators and the Forex Beginner ?

721746_50c9_3
Share

If you are a beginner in the business of trading the forex markets then it is a wise decision that before you seek to obtain a return on your investment, you should seek to obtain a return OF your investment.

To be successful in currency trading you must find a consistent method to accurately determine market direction. Basically, currency price action movement occurs in three directions; either up, down, or sideways. If the market is moving up it is said to be in a bullish trend, while downward movement constitutes a bearish trend.

To help the trader make the correct trading decision there are a variety of indicators available, which base their effectiveness upon the following technical factors:

  • Price —Simply look at your currency charts and note the current price. Then look to see where the price was over a period of a few days, weeks and months.
  • Support —The “price floor” below which price seems hesitant to fall
  • Resistance—The “price roof or ceiling” above which price seems hesitant to climb
  • Price Channel—A price range where price fluctuates between an area of support and an area of resistance. This channel may be bullish, meaning price increases; bearish, meaning price decreases; or sideways, meaning that the price of the currency pair does not change in any significant way
  • Trend—The current general direction of the market, formed by predominantly higher or lower movement in price over time. This may be determined from observation or with the use of moving averages or trend lines.

A few common technical indicators:-

Perhaps the simplest of technical indicators for the beginner trader to benefit from are horizontal lines of support and resistance. Below is a candlestick chart of the USD/JPY currency pair on the daily timeframe. Notice how between March and April 2015, price paused and bounced at the 118.70 price area no fewer than 5 times? The astute forex trader would have hit the buy button each time price hit this support zone, for a cool addition of pips (i.e. dollars $$$$) to their trading account! You may also imagine the same thing happening at an area of resistance, offering the trader an opportunity to benefit from bearish market moves.

tech

Another set of technical indicators belongs to the Oscillator group. To oscillate is simply to move back and forth. An oscillator indicator ambles about a center line between an upper and lower level so traders use it to reference what are referred to as “Overbought” and “Oversold” market conditions. Oscillator indicators include the Stochastic Oscillator, the Relative Strength Index (RSI), Commodity Channel Index (CCI) and the Moving Average Convergence Divergence (MACD)

To illustrate the use of oscillators in trading let’s take a look at the stochastic oscillator. With this indicator the trader’s main consideration is whether the currency pair is in an overbought or oversold situation. Found at the bottom of your trading chart, the stochastic oscillator indicator consists of two moving averages bound between the 0 and 100 horizontal lines. Close attention is paid by traders to the 20 and 80 horizontal lines as these are used to represent the oversold and overbought areas respectively, with the area between 80 and 100 being the overbought region and that between 0 and 20 being the oversold region.

tech1

Written by Ferl Ngningone

Please subscribe for more articles, video and podcasts


Ferl is a former Financial Analyst at BNP Paribas and a well-seasoned globe trotter. Besides trading online he enjoys traveling more than anything.

  • Mark Manatad

    This information is priceless! I am trying to find ways on how to increase my business and this helps me to understand a little more. thanks!

    • admin

      Thank you & feel free to subscribe for more free articles podcast and video

    • admin

      Thanks !

  • Pingback: Google()