Online Forex brokers will give you a variety of different tools which you can use in technical analysis. Here are some of the most common ones:
Bollinger Brands
These are used to measure the volatility of the market. They comprise 3 lines:
1. A moving average in the center.
2. A lower band which shows the moving average minus 2 standard deviations.
3. An upper band which shows the moving average plus 2 standard deviations.
When the volatility of the market is low, the bands will come further together. When the volatility of the market is high, the bands will spread further apart.
The Bollinger Bounce
The middle band usually stays between the outer bands. The outer bands can be compared to border control. When the middle band gets too close, it is bounced back towards the middle. This is why it is called the Bollinger Bounce. It is helpful to be aware of this because if you see the middle band getting close to an outer band, it will probably bounce away.
This strategy works the best when there are no clear trends and prices seem to be fluctuating.
A good strategy to use to spot an early trend is called the Bollinger Squeeze. This is when the bands squeeze closely together and can often mean that a breakout is imminent. If the middle band breaks through either the lower band or the upper one, this means that the trend is likely to continue to go in that direction.
Parabolic SAR (Stop and Reversal)
This indicator is used to identify trend reversals. It is an easy indicator to read. Dots appear on the chart in positions either below or above the candles (the formula used to work out where the dogs must go is rather complicated).
Dots below the candles are an indication to buy and dots above the candles are an indication to sell.
Parabolic SAR does not work well when price movement is small but it does work well when there are clear trends, either in an upward or downward direction.
Stochastics
Stochastics has a scale from 0 to 100. It is an indicator used to measure oversold and overbought conditions in the market. When the lines are over 80, that means the market is overbought. If this happens, a downward trend might form. When the lines are below 20, this means the market is oversold and an upward trend might form.
Stochastics can be useful in working out when to issue sell or buy orders and when to lock in profits. You should never use just one indicator. It is better to combine several of them and adjust these to your own trading strategy.
Let's look at six tips to make your forex technical analysis successful.
1. Trade Valid Data
Using technical analysis on forex charts is designed to get the odds in your favour and to trade the odds you need meaningful data. Do NOT day trade ? day traders never win as all short term volatility is random.
Either swing trade look for trades that last a week or long term trend follow.
2. Use Weekly and daily charts
Don't just use daily charts - use the weekly chart as well to spot the major trends ? remember in currency trading currency trends follow economic cycles and these can last for several years and they are apparent on the weekly chart.
You can then use the daily chart to time your trading signals and entry and exit points.
3. Understand Support and Resistance
All successful forex traders need to understand support and resistance and you want to look for valid levels ? These are levels that have been tested several times ( at least 3 ) and preferably in two different time frames.
Try and trade these valid levels and again start with the weekly chart first and see if they line up with the daily levels ? these are the very best set ups.
4. Understand Breakout Methodology
While support and resistance can hold they can obviously break as well and it's a fact that many of the major trends in forex trading take place form new market highs NOT market lows.
Many forex traders hate buying new highs as they feel they have missed a bit of the move ? while this is true these trends simply accelerate away and you should grit your teeth and enter.
5. Use Momentum to your advantage
So will support or resistance break or hold? You don't know and you should never predict or hope you should use momentum indicators.
Whenever you enter a trade your view should always be supported by price momentum. Two of the best indicators are the stochastic and Relative Strength Index. They will help you time your trades better get the odds on your side and help you make bigger profits.
Never make the major mistake that most traders do in forex technical analysis of trying to trade without momentum if you do you will lose.
6. Keep it simple
Your system should be simple ? simple systems work best as they have less elements to break and are more robust in real time trading.
You can trade successfully and make a lot of money just basing your system on the tools we have outlined above.
6. Be Patient and be disciplined
Be patient don't trade for the sake of trading.
Only execute treading signals that your forex technical analysis system generates and don't lose discipline and chase losses or try and hurry profits.
When you have entered a trade maintain discipline and make sure you place a stop and have a realistic target.
Our view of forex technical analysis may strike you as simplistic and it is but after trading for 25 years and trying just about every method out there we have found the above works and makes us money and maybe it can help you to.
Both Ian Armstrong & Monica Hendrix are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ian Armstrong has sinced written about articles on various topics from Mobile Phone Reviews, Forex Guide and Finances. Ian Armstrong is an avid Forex enthusiast.Ian recommends Avi Frister's "Forex Trading Machine", which uses only price and time as trading indicators. Full details at. Ian Armstrong's top article generates over 18100 views. to your Favourites.
Monica Hendrix has sinced written about articles on various topics from Forex Trading Forex, Home Based Business and Forex Day. NEW! 5 X Critical Trader PDF's & Much More Claim your FREE PDF's and demo account and and also get: Breaking financial news, tight pip sprea. Monica Hendrix's top article generates over 22200 views. to your Favourites.