The only way you can succeed in doing trading on the foreign exchange market is to do some forex technical analysis. Technical analysis involves reading particular forex indicators to project certain market movements and to time your trades properly. Any forex trader that does not do forex technical analysis is set for big losses. Forex technical analysis allows you to look at the market fundamentals and cross check it with the human component of the forex equation. That is, how other traders will react to the movements in the market. Looking at forex charts and forex indicators will give you a graphical representation of these market movements and then given your understanding of human behaviour, project whether your trades are likely to go in one direction or another.
There are a number of forex indicators as you will learn from your basic forex trading education. Some of these are the Bollinger Bands, the Stochastics, the Relative Strength Indices, and the MACDs. Chances are, you will be using a combination of these forex indicators. The following details three of these forex market indicators to help you choose which one to use in your forex trading.
1. Bollinger Bands - These forex indicators are used to measure how volatile the market is. Two common strategies are executed using this indicator: the Bollinger Bounce and the Bollinger Squeeze. In the bounce, the basic premise is that the price usually tends to go back to the middle of the bands. Logically, you execute a buying order when the price reaches the lower Bollinger Band and a selling order when the price reaches the upper Bollinger Band. The Squeeze, on the other hand, is usually used to ride on breakouts as they appear.
2. Stochastics - These forex indicators is used to show whether the market is overbought or oversold. In any one of these scenarios, there are opportunities for major trades. In a market that is overbought and moving average lines are upwards of 70, it is a good time to sell. Inversely, in a market that is oversold and the moving average lines are downwards of 30, it is time to buy.
3. Relative Strength Index - Otherwise called as the RSI, this indicator also indicates a market that is overbought or oversold. Its upper and lower limits are 80 and 20 respectively. The RSI is usually used to look for trends in the market. When a trend is forming, it would be good to enter a trade at a time when the RSI is either below or above 50.
Which ones of these forex technical analysis tools you use will depend on the kind of trader you are and what your trading strategy is. There is no way you get into a long term profitable forex trading business without getting into forex technical analysis. It could be quite tricky to do forex technical analysis especially to new traders and it could take some amount of practice before you get comfortable. Persistency and quick thinking would be to your favor when trying to master forex technical analysis.
Kelvin is a Forex enthusiast and a full time Forex trader. His website at http://www.How-To-Trade-Currency.com offers simple yet powerful Forex tips and strategies to help other traders to make their 20 pips a day. Kelvin's Forex newsletter is jammed packed with Forex tips and techniques for other Forex enthusiast. Subscribe for Free Forex Strategies newsletter now.
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