The Basics Of Forex Technical Indicators
Technical analysis is one of the main tools in the kit of a Forex trader. Of course, there are hundreds of different indicators that experienced financial analysts might consult. In order to keep readers from getting overwhelmed, this article will simply touch upon the basics that are needed to understand the concepts of technical analysis and get started.
Support And Resistance
Of course, most traders want to try to predict the future trend lines of a pair of currency. For example, they want to know if GBP/USD or YEN/EURO pairs will rise or decline. The common way to illustrate this to simply plot the history of these values on a graph. This could be done with graph paper, but it usually is done with software these days.
By tracking the end points of these lines, analysts might see support and resistance. In other words, they can spot the typical tops and bottoms of the pairs of currency.
This indicator is also called “the figure,” and it is often overlooked. However, some experts say that it is a very useful indicator of the future and also, it is one of the easiest ones for traders to understand. Actually, these aren’t always round numbers in the sense that people learn about in school, but they are numbers that end with 0, and that is true even if the 0 comes at the end of some decimal places.
For example, let’s say the AUD/USD just reached $1.02. It might be expected that the next rising trend number would be $1.0250. It so happens that values tend to break at these round numbers, and this is a surprisingly accurate system.
Some Forex traders like to say, “Trends are friend.” Commonly, successful traders do tend to trade with trends. However, there are also some other systems of analysis that rely on trading counter to the trends. In either case, it is still important to understand trends.
Some trend indicators that are used are moving averages, standard deviation, and average directional movement.
Understanding The Definition Of Indicators
Basically, indicators are historical data that can be used to try to predict the future. While historical performance might be one way to judge the future, it is hardly foolproof. That’s why most analysts also make themselves of current news and economics that could impact these trends.