forex technical analysis refers to analyzing the forex market
with the help of the technical tools. The tools used for technical
analysis include daily advances and declines, trend indicators,
daily new highs and lows, indices, volume, relative strength
index, moving average, stochastic, tick and many more. For the
forex trader it is very difficult to choose from among this
of the indicators can be said to be perfect. It is on the trader
to choose a reliable technical analysis indicator and then follow
it strictly. If the traders receive good results from an indicator
it should not be changed are abandoned. The traders should have
knowledge about different tools used for forex
The advance and decline
indicators indicate the breadth of the market. All the market
action is reflected through this indicator, if the indicator
moves in that direction of the market it specifies that the
trend will continue to move in the same direction else the direction
of the trend will change. The calculation for this indicator
is very simple. A large base number is picked up and then the
difference between the advances and declines on a weekly or
daily basis is calculated by adding the advances and subtracting
The advance decline ratio
access the momentum indicator and is calculated by dividing
the total number of advancing currencies by the total number
of declining currencies and it can be calculated on a daily
or weekly basis.
The high low indicators
are calculated by subtracting the new lows from the new highs
to get a difference and the swings are smoothened out by moving
average. It results in successful signals when in divergence
from the market action for a longer period of time.
Cycle analysis forms
part of technical analysis as forex market seems to be moving
in cyclical patterns due to fundamental and technical factors.
The forex technical analysis
trend indicators have provided success to most of the forex
traders as the market always moves in trends. The trend index
is calculated by dividing the highs by the sum of highs and
lows on the daily basis and swings are smoothened out by applying
a ten week moving average. If the index is computed to be greater
than 80% the bullish trend is depicted which indicates the buying
period and when the index is less than 20% the bearish trend
is indicated and the traders get a sell signal.
The relative strength index is used to measure the strength
of the currency trend ranging from 0 to 100 and depicts the
oversold or overbought conditions of the currency.
the currency trend is on the rise it is indicative of an overbought
condition and the falling currency trend is indicative of the
oversold condition of the currency. The relative strength index
is calculated as a percentage of the currency price fluctuations
within a certain time frame. When the result of the relative
strength index is less than 25% the oversold condition is depicted,
but if the result is greater than 75%, it depicts the overbought
condition. If the relative strength index ranges from 30% to
70% it is indicated of a neutral market. The relative strength
index is calculated by dividing the sum of price rises divided
by the sum of all the price fluctuations. Less fluctuation in
the currency prices is witnessed if the timeframe for calculating
relative strength increases.
The moving average is calculated by multiplying the closing
price of the last day with the total number of days for which
the weighted average is to be calculated and dividing it by
the number of days for which it is being calculated. The latest
currency prices are assigned more weight for the correct prediction
of the currency prices and this is also quite dependable for
the forex technical analysis
and very similar to the currency trends. The moving average
can be used as the trend or as an indicator. If the currency
prices are on a speedy rise then the moving averages histogram
becomes larger and then the currencies prices fall at a very
fast rate than the moving average histogram becomes smaller.
Occurrence of trading divergence is witnessed whenever the prices
fall or rise suddenly and the indicator fails to depict the
accurate situation. Two Different momentum lines are plotted
depicting the difference between the two exponential moving
averages and the signal to calculate the moving average. Whenever,
the lines indicating signals and moving average cross each other,
it gives an indication of the change in the currency prices.
The stochastic indicator comes into play then the closing prices
of the currency are high and overall currency prices are on
the rise and also in the situation then the closing prices become
low or show a downward movement. It is indicated off the movement
of the currency prices whether they are moving in the upward
or the downward direction. The statistic indicators are is indicated
of the current closing prices of the currencies then these are
compared with all the previous currency prices in a certain
time frame. It gives the overboard and oversold conditions of
the currency on a scale which ranges from 0-100%. If any damages
up cause between the prices of the currencies and the stochastic
line a trading signal is given to the forex
technical analysis. The stochastic indicator is calculated
as %K and % D. %K compares the current closing currency prices
to the previous currency price range and %D acts as a signal
line. Whenever the stochastic line crosses above 80% an overbought
signal is given and in case the stochastic line crosses below
20% it refers to the oversold signal. Thus the stochastic indicator
gives the buying and selling signals to the forex traders.
Forex technical analysis does not only refer to the above mentioned
tools but several other tools combined together and the forex
technical analysis has to choose from among these tools
to trade successfully in the forex market. While choosing from
among the two spectators must keep in mind his personality and
the type of trading he intends to perform in the forex market.
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