Forex Technical Analysis

Forex is the most important trading community on the planet with $1.8 trillion dollars being exchanged every day. There are dozens of various currencies traded but the large players to concentrate on are all traded with the US dollar and include EUR (Euro), GBP (British pound), JPY (Japanese yen), CHF (Swiss franc), AUD (Australian dollar), NZD (New Zealand dollar), and the CAN (Canadian greenback). Each of these currencies is exchanged with the currency of different nations at totally different alternate rates-that are at all times in a state of flux as a result of the market trades around the clock (Sunday through Friday). The volatility and sheer measurement of the market means that there’s ample fluctuation to provide big profits-and losses. The challenge for the investor, as at all times, is to predict which course the charges of currency pairs will fluctuate.

The beginning level in any investment technique is figuring out what sort of research might be used to help guide enter and exit decisions. Traders who use fundamental analysis take a look at a nation’s rates of interest and different economic indicators when deciding to enter or exit a position. Basic investors tend to commerce based mostly upon information releases and financial knowledge from the nations concerned within the currency pair.

Briefly, technical analysis entails the interpretation of worth performance and chart patterns-all historic data. Some technical indicators used in this type of evaluation include:

. Shifting averages including Simple & Exponential
. Breakout Factors
. Strains of Help & Resistance

Technical merchants don’t imagine that the past essentially predicts the future-but that lengthy and short term traits can be recognized and exploited to help information current decisions on entry and exit points on positions. Technical merchants try to identify current trends in Forex to find out entry and exit points. If they’re appropriate, they can journey a development (in both course) for a revenue till an exit level is reached (when the pattern is ending).

Essentially the most profitable traders on the Foreign exchange are likely to look for lengthy-time period trends and favor technical analysis. Basic merchants have to enter and exit positions very quickly with a purpose to capitalize in value fluctuations brought on by news events (interest rate modifications, launch of economic information, etc.) and are subsequently extra vulnerable as a consequence of extreme trading. If there actually was “a secret” to trading success on the Foreign exchange, the top investors all tend to agree on the following:

1. Choose foreign money pairs involving U.S. dollar (has volume to produce the price fluctuations vital for large earnings and the liquidity to enter/exit positions at will)
2. Find foreign money pair through backtesting that has most profit potential (pip motion) and least volatility by means of use of technical analysis
3. After determining traits, set stops and exit factors for each protection and most profitability
4. Overview charts once per day (overtrading and day trading can damage your portfolio)
5. Stay patient and exit positions as soon as technical decision level has been reached

If there really is a secret to buying and selling success on the Forex it needs to be patience. Trading methods are never perfect as a result of the market will never be predictable one hundred% of the time. There will be times when any technique fails and cease points are reached before earnings are realized. Continuous again testing, remaining patient, and setting stops are the true secrets and techniques of Forex success.

By: Simon Warney

First off, I don’t claim to be a “guru” on fibonacci levels. Like any other trading technique, a new trader needs to do their own homework and see exactly how the market reacts to various fibonacci levels (from this point forward, I am going to abbreviate the fibonacci word by “fib” because to type fibonacci out every time would lengthen this article by half again).

I am not going to look at any other indicators (like moving averages, or other technical indicators). In my full trading plan, those indicators play an important part of deciding if I take a trade or not. In another words, just because you have reached some of the fib levels I am going to talk about in this article, DO NOT take a trade unless other criteria have been met. Fib levels, while important, are not a be all, end all, stand alone strategy.

The 61.8% Fib Level

When I first started trading, many of the trading books and manuals that I studied recommended using the 38.20% (38%) fib level, and the 50% fib level to analyze support/resistance areas. While I have found those to be somewhat useful, there are other levels that I have found to really give a trader a better edge in making decisions on where support/resistance areas are. The first of these levels is the 61.8% (61%) fib level. Most charting platforms have a fib tool built in. In Tradestation, the fib tool is very easy to use. Let’s assume that the market opened (point 1), moved down and bounced off of a certain level (point 2) and then began to rally back up to point 1. The price stops there and begins a pullback. Using your fib tool, click on point 1 and then on point 2 and release. Your fib levels will then be marked. It is important to see how the price reacts to the 40%, 50% and ultimately the 61% fib level. The market can turn and go in the other direction at any of these levels. My research has shown that the larger the pullback (specifically the 61% fib level), the better chance that the market will turn around and go in the other direction. I have seen many times that the market will pause at the 61% fib level, almost as if it is trying to make up it’s mind if its going to stop there, or head on in the original direction it was headed. I urge you to start watching the 61% fib level and see how many times that level holds the price in.

The 127% Fib Level

If the 61% fib level described above is broken, then the next two fib levels come into play. The second fib level that my testing shows is worthy of mention is the 127% external fib level. Usually (but not always), once the 61% fib level is crossed, the market will travel to the 127% external fib area. An interesting point is that many traders don’t acknowledge or use the external fibs to determine possible stopping areas. I am amazed at how many times the market turns on a dime at this level.

The 161% Fib Level

Another level that I think needs to be addressed is the 161% external fib level. If the 127% fib level doesn’t hold the price in, the next stopping point is the 161% fib level. This level also seems to stop a trend in its tracks.

How To Use Fib Levels

In my opinion, there are two ways to use fib levels. If I am looking to enter a trade and the 61% fib level is right above/below my entry, I will pass on the trade and wait for a set-up without that area to compete with. Secondly, if the 61% fib level has been broken, I know that there is a reasonable chance for the price to go to the 127% or 161% fib extension area.

Conclusion

As you began to work with fibs, understand that these areas are just that, areas. That means that when the price approaches a fib level, it can go past that level by a few ticks or more and still be a valid fib level. I hope that if you are serious about learning how to day trade, you put fibs in your tackle-box as a tool to help evaluate strong support and resistance levels. Charts describing the above set-ups and more free commentary are available on my blog. I hope that Fib levels help you be able to: Catch a whopper!!

Regards,

Ron Lewis

By: Ron Lewis

There are lots of different technical indicators that people like to use to trade the forex markets. Some use the old favourites such as the RSI, Stochastics and MACD indicators whilst others, like myself, like to use some of the lesser known ones such as the Supertrend and Smoothed Repulse indicators. However in this article I want to discuss the ADX indicator in particular.

ADX stands for average directional index and it is an indicator that was created by J. Welles Wilder, one of the most renowned technical analysis experts. It is primarily used to detect trends in the markets, and more specifically the strength of the prevailing trend. It should be pointed out that it doesn’t tell you the direction of the trend. You have to figure this out for yourself.

So why is this indicator useful for forex traders?

Well it basically tells you when you should be out of the markets completely, and when you should either be in a position or thinking about taking a position. In simple terms, if the ADX indicator is below 20, this indicates a trendless market and is often highlighted by a narrow trading range on your price chart. You should therefore be out of the market at this time.

If, however, the ADX is above 20 (and preferably above 25) and heading higher, this indicates a strengthening trend. So if the price is moving either upwards or downwards on your price chart, you should consider entering a position at this point. Of course you may want to use other indicators to confirm your entry point.

In general the higher the value of the ADX indicator, the stronger the trend. However that doesn’t necessarily mean you should enter positions when this indicator is at it’s highest, because very often the indicator will reverse when it gets above 50 or 60, for instance, and the trend will start to weaken.

The best time to enter a position is generally when the ADX is moving upwards from the 20 or 25 area because this is where a lot of the strong trends will begin. It doesn’t always work out this way of course, but if you wait for this to happen at the same time as the price makes a new high or low for the day, then you can find some excellent high probability breakout trades.

So overall I can definitely recommend you consider using the ADX indicator when trading currencies. It really is a very useful indicator for highlighting the strength of trends, and alerting you to the start (and end) of new trends.

By: James Woolley

The Fibonacci retracements are actually based on different mathematical numbers that happen to repeat themselves and make an attempt to measure any of the potential points that can be retraced by any currency pair or simply pulling it back to the defined range. It may happen that you do not have much idea about the mathematical system the Fibonacci retracements follows, but you can get to make a clear understanding about how you can make use of the charting applications and programs that support the Fibonacci function or you can simply suggest this to your Forex trading firm and they are going to help you with the charting.

You need to keep this point in your mind that the Fibonacci retracements can be applied to both the uptrend (bull) and the downtrend (bear) markets. However, you may need to look out for the different retracement levels and then make use of them accordingly as this will be confirming your trading actions.

There are several technical indicators and signals that are based on different mathematical calculations and the technical indicators are actually the statistics of the market trends and market data. Traders make use of these documents extensively while they are conducting technical analysis as this is extremely helpful in predicting the currency trends. There are two main technical indicators which are as under;

The trend indicators are the ones that are helpful in reflecting the strengths and directions of the on-going trend. Traders may happen to enter into a position where they are following a trend and in the end, the trend they are following shows a strong and high momentum in either direction.

One of the most common and preferred trend following indicators are the Bollinger bands and moving averages. The Oscillators are such indicators that are bonded with two extreme values that reflect either short term oversold or overbought conditions. The most commonly used oscillators are; stochastic, moving average convergence difference (MACD) and relative strength index (RSI).

Most of the charting packages normally include the most common Fibonacci retracements technical indicators; you may also be able to find out charting packages and then adding indicators to them if you want to include any.

You need to make sure that the strategies you determine are understandable about how the foreign exchange market actually works, and then in accordance you need to determine your own trading approach. You can also opt for a random procedure which is the trial and error method. While opening an account, you should be initially opting for a demo account and unless you learn the fundamentals, you can continue using it. Always keep this in your mind that slow and steady wins the race.

By: Simon Grimshaw

When developing your own forex trading style, there is a danger in becoming fascinated with indicators. The newer trader experiments with one, finds it doesn’t work so well, then switches to another, then another, etc.

The list below highlights 7 key indicators that can be woven into your forex trading style. You may not need to go any further than this. Stick with the 7, practice them, get to know them inside out, and get the satisfaction of developing your own successful forex trading style.

#1: Candlesticks

Watch for a hammer, doji, head and shoulders pattern, 1-2-3 formation, double top or bottom.

#2: Trendlines

Draw common sense trendlines across the highs in a downtrend or lows in an uptrend. Watch for price to break the trendline and come back and test it.

#3: MACD

Watch for a difference between the highs and lows of MACD and price. When there is divergence watch closely for a good entry point once price has shifted in the direction of the divergence.

#4: 200 EMA

This indicator is an all time favorite for traders across the board. On higher time frames (1 hour, 4 hour, daily) take note whether price is above or below the 200 EMA to give you the sense of price direction.

#5: Pivot points

Take note of previous support and resistance lines as price will come back to retest these levels time and time again.

#6: Fibonacci

Learn how to use this tool well and take particular note of the 50 and 62 retracement levels, especially when they coincide with trendlines or previous support/resistance.

#7 Price Itself

Let price prove to you where it wants to go by setting entry orders rather than market orders when entering a trade. By setting an entry order, price has to reach the target you specify before pulling you into the trade.

Using Technical Indicators

It is important to acknowledge the probability that no indicator on its own is a good enough reason for entering or exiting a trade.

Your individual Forex trading style will evolve in time as you become familiar with the key indicators and probably rely heavily on just 2 or 3 out of the 7. However, it is crucial to get a combination factor when considering a trade. Ask questions such as:

While one indicator may show a clear signal, how do the other indicators line up? Is that one signal running against the general conclusion drawn from the other indicators?

This is where your skill as a trader comes in as you assess the clues the indicators give and make a decision based on your perception and experience in the market.

Only time and practice can give you that. Once you are familiar with the top 7 indicators, spend most of your time and energy on developing the emotional and mental disciplines necessary for successful trading. This will eventually make up the most important part of your Forex trading style.

By: Michael A Jones