TECHNICAL ANALYSIS OF FOREX TRADING
Am going to be briefly introducing you to the concept of technical analysis which won’t be as broad as you may hope because I will be just talking about the technical tools that I have been using for a while and with a combination of the fundamental analysis, giving me a good read of the market.
I have mainly used a total of five tools in my technical pool and below will be the way I have been using them but I won’t be giving you the history of them and the overly technical explanation of how they were intended to be applied but how I have successfully utilized hem.
Everything you should know about Tools of Forex Analysis for both beginners and Professionals
Caution: after reading every tool ad how I have applied it you should keep caution that I use these tools as a whole on a singular, one tool complements another and as a whole complements the fundamental tools I would have already analyzed earlier.
TOOLS.
MOVING AVERAGES.
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This is my favourite technical tool and which I think is one for other trader making me think it will be one of yours. I have mastered the use of a total of 3 moving averages which all play a major role in the complete analysis. I use one to detect a trend another to confirm the trend and the other to show the strength of the trend, they all have a different bearing as shown below.
Forex Trading For Beginners: Important things you should know first as a Beginner
5 EXPONENTIAL MOVING AVERAGE. (5 EMA)
The bearing of this moving average is as shown a five exponential moving average, I know if your reading this and as interested in forex as I was you would be asking yourself “what is an exponential moving average?” but for that answer, you will have to wait for the separate moving average article where I will go further into moving averages.
So the 5 EMA simply shows the trend in real-time as it's happening. The other name is the short moving average.
20 EXPONENTIAL MOVING AVERAGE(20E MA)
As I have told you earlier that I won’t be boring you with the mathematics of moving average but how I have used them to gain a profit in my trading.
The 20 EMA has been influential in my trading to confirm a trend that has been set by the 5 EMA by either crossing above or below the 5 EMA. Where it confirms a downtrend by crossing from below the 5EMA moving steadily above it and also confirms an uptrend by crossing from above it.
50 SIMPLE MOVING AVERAGE(50 SMA)
This moving average shows the strength of the trend simply by either crossing from below or above the 20 EMA, it shows strength in an uptrend by crossing from above the 20 EMA and further extending above it. The larger the gap between the 20EMA and 50 SMA after the 50 SMA has crossed it you’re more confident you should have in the trend this also applies to the downtrend respectively.
# This is what they call a major indicator.
VOLUMES
Volumes are what they call lagging indicators but are also important in gaining the bigger picture of the complete analysis. This shows the distribution of money volumes in either an uptrend or a downtrend. This appears in the form of bar graphs and where you see a high distribution of volumes is where your interests lay. If you see high distribution in an uptrend area that should give you confidence in the trend and in combination with your moving averages read, you should be able to make a confident trade. This applies also to a downtrend.
MCAD INDICATOR.
This indicator supports the moving average readings where you will have to use the same bearing for the MCAD as you used in the moving averages. The terms used in the MCAD bearing are short, medium and long bearing. So if you follow my moving average bearings that mean that your MCAD bearing will be 5 for short, 20 for medium, 50 for long.
So for a brief way of how to use the MCAD, the MCAD has a horizontal baseline where if there are bar graphs above that line it shows an uptrend and when there are bar graphs below the line it will show a downtrend.
RELATIVE STRENGTH INDEX (RSI)
This is a technical tool I use just to feel calm on the trade am about to make as it shows me if the currency pair is being oversold or overly bought. The RSI chart appears in a raw form (=) where the upper line of the raw is scaled at 70 and the lower line is scaled at 30, in between the raw is a line graph that moves either up or down within the raw. So when this line hit the upper 70
scale line, this will show that the current forex pair is being overbought and at any time there is about to be a sell and the same application on the lower 30 scale line. This is a tool like the Fibonacci tools that shows when to enter a trade and get out.
YOU ARE PROVIDED WITH ALL THESE TOOLS AND MORE WITH YOUR BROKER PLATFORM. I WILL BE MAKING AN ARTICLE ABOUT CANDLESTICK CHARTS AND TREND CHANNELS WHICH IS THE FOUNDATION OF TECHNICAL ANALYSIS.
