Have you just jump in to the world of forex or already trade for a few year but still need to improve your knowledge about forex trading? Well after you learn about what it is forex, now you must begin to trade. But of course there is bunch of question on your head, how do I start? What is my standard for trade? where should I set my point of view? Well although not that all can be answered just by one article but we will learn about that all one by one.
This time OurSmartInfo will give suggestion for you to choose Indicator tools to be used. Technical analysis is more than reading charts. Of course, charts are a big part of this type of analysis. But price movement is only part of the story. Technical indicators or studies help to interpret the price movement of a currency. They indicate whether the price movement is strong or likely to reverse. They can even predict the next price movement of a currency although there is nothing can give you 100% positive result.;)
There are dozens of different types of technical indicators. Every trader uses his or her favorites. Yet most traders will agree that there are 5 indicators that every currency trader must use because it's easy to learn and proven effective to be combine with other indicators. Here is Top 5 Indicator that generally used by Everyone including professional trader:
1. Moving Average Lines
Moving average lines are one of the best indicators that show whether a trend is bullish, bearish, or nonexistent. They also show support or resistance levels. This information can be provided at a glance. At the support level, the price is likely to start moving higher while, at the resistance level, the price is likely to start falling. The 20-period moving average line is standard for currency traders.
2. MACD (Moving Average Convergence Divergence)
The MACD is best used as a confirmation indicator. What I mean by that is that it should be combined with other indicators to maximize its potential. The MACD has 3 main parameters, 12 (which represents the previous 12 bars of the faster moving average) 26 (which represents the previous 26 bars of the moving average) and 9 (which represents the previous 9 bars of the difference between the two moving averages, this is plotted as a histogram. In essence when the faster moving average crosses above or below the slower moving average it indicated a new bullish or bearish trend is forming. Sounds familiar? This is similar to our moving averages crossovers that we discussed previously. Now to best use MACD is to look for a bullish or bearish crossover with the moving averages, once we confirm a crossover we are looking to confirm the trend with a MACD crossover above or below the 0 line with the histogram in favor of our trend.
3. Bollinger Bands
Bollinger Bands are trading bands that are placed around a currency price and the 20-period moving average line. They show whether a currency is trending and the points at which a price movement might reverse. Bollinger Bands are excellent for illustrating support and resistance as well as the level of volatility (or price change) of a currency. Support is usually found at the lower Bollinger Band while resistance can be found at the higher Bollinger Band.
4. Average Directional Index (ADX)
This indicator works well with both moving average lines and Bollinger Bands. The ADX shows the strength of a trend. If a trend is strong, it is likely to continue. If it is weak, it is likely to reverse. Traders have different figures for the strength of a trend. An ADX level that is below 10 shows that the currency is trading in a tight range or is not trending at all. An ADX level above 30 shows a moderate strength trend. An ADX above 40 indicates a strong trend.
5. RSI (Relative Strength Index)
The RSI is similar to that of the Stochastic. It is a price following oscillator that ranges between 0 and 100. There are 3 main zones with the RSI (Upper overbought zone ranging from 70%-100%, Lower oversold zone ranging from 0%-30% and middle or neutral zone ranging from 30%-70%. We can help use these zones to pick up potential tops and bottoms depending on the market being in an overbought or oversold position. Along with determining tops and bottoms the RSI can also be used to locate and confirm a trend.
Beginner traders will be bombarded by a large number of technical indicators. But don’t try to use all of them, that's pointless and waste your time. Starting with the 5 indicators in this article will provide a good foundation for charting because it's easy to learn and used. Using candlesticks in conjunction with the above indicators will provide an excellent view of the market.
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