Technical Indicators 101
Knowledge in Technical Indicators is one of the most important aspects of Forex trading.
In the foreign exchange markets, a technical indicator is a series of data points used to forecast the trends of the movements of currencies.
A graph chart of horizontal and vertical lines with numerical figures on either the right side or the bottom is the visual representation of a technical indicator. The lines with marked points indicate the direction of movement of the trend of a currency.
Technical analysts use these indicators to predict the trend of direction of a currency, such as if the currency’s value will go down or up within a specific period of time.
There are many categories of technical indicators.
The common categories include:
1. Average True Range – This indicator measures the volatility of the foreign exchange market. It does not specifically predict the movement of the trend of a currency. It only offers information about how volatile is a currency.
2. Bollinger Brands – It measures the changes in the supply and demand for a currency. The limits of upper and lower borders determine the changes in the supply and demand.
3. Moving Average Convergence/Divergence (MACD) – It identifies the changes in the trend movements of a currency. This indicator shows the variations between a fast and slow exponential moving average of the closing value of a currency.
4. Momentum – It measures the difference between the prevailing market price of a currency and its price a few days before. The difference between the present market price and the previous price is the rate of acceleration of the currency.
5. Moving Average – This shows that if a currency’s price begins to move swiftly below or above, there will be some time before the new data will reach into the moving average calculation.
6. Stochastic oscillator – The graph of this indicator tracks the momentum of the foreign exchange market through two oscillator lines. The main line is the %K and the secondary line is the %D. The changes on the main line are more noticeable than the %D line because the secondary line is the moving average for the %K line.
7. Parabolic stop and reversal – A graph of this indicator shows the parabolic-shaped series of dots in the price chart of a currency. It tells a currency trader where to set his trailing stops on the graph.
8. Relative Strength Index – This follows the lines of an oscillator in measuring a currency’s price in relation to its previous price. The lines range between the values of 0 to 100 and indicate oversold and overbought readings.
9. Standard Deviation – This is a statistical measure of the volatility of a currency’s price and is not a distinct indicator because it is part of the other categories of technical indicators.
Learning about the categories of Technical Indicators can be a good starting point for establishing a career in foreign exchange trading. Your knowledge and skills about technical indicators can aid you in entering the industry as a foreign exchange trader, technical analyst, consultant, investment adviser, etc.
However, you should remember that the categories of technical indicators listed above are just the tip of the iceberg. Taking short-term courses, online classes, and reading instructional materials are other ways you can learn more about Technical Indicators and Forex Trading in general.
| Last edited by admin on July 6, 2009 at 1:23 am |
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